-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P+Odh+nhSqnlH1gSAJQQ3MEy72ehkyC7Ubt/U9lqbABsTvKsAM5B3MeR5w/KUnSa 6yhnQfqivDAvPdVa9Dxm3g== 0000904080-02-000001.txt : 20020413 0000904080-02-000001.hdr.sgml : 20020413 ACCESSION NUMBER: 0000904080-02-000001 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020115 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STONE ENERGY CORP CENTRAL INDEX KEY: 0000904080 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 721235413 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12074 FILM NUMBER: 2509772 BUSINESS ADDRESS: STREET 1: 625 E KALISTE SALOOM RD CITY: LAFAYETTE STATE: LA ZIP: 70508 BUSINESS PHONE: 3182370410 MAIL ADDRESS: STREET 1: 625 E KALISTLE SALOOM RD CITY: LAFAYETTE STATE: LA ZIP: 70508 8-K 1 f8k-chantel.txt FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): December 31, 2001 STONE ENERGY CORPORATION (Exact name of registrant as specified in its charter) Delaware 1-12074 72-1235413 (State or other jurisdiction (Commission File (I.R.S. employer of incorporation or organization) Number) identification no.) 625 E. Kaliste Saloom Road Lafayette, Louisiana 70508 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (337) 237-0410 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On October 8, 2001, Stone Energy Corporation ("Stone") entered into definitive agreements with Conoco Inc., and one of its subsidiaries to acquire through both stock and asset purchases, interests in eight oil and gas properties located in the Gulf of Mexico and other complementary infrastructure assets (the "Acquired Properties") for a total purchase price of $299.7 million. The acquisitions were completed on December 31, 2001. Estimated proved reserves associated with the Acquired Properties as of December 31, 2001 were 60.2 billion cubic feet of gas and 25.7 million barrels of oil. The Company funded the purchase of the Acquired Properties with borrowings under its revolving credit facility and net proceeds received from the issuance of $200 million of 8.25% senior subordinated notes due 2011. Item 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of the Acquired Properties See "Index to Financial Statements - Financial Statements of the Acquired Properties" on page F-1. (b) Unaudited Pro Forma Financial Information See "Index to Financial Statements - Unaudited Condensed Pro Forma Financial Information" on page F-1. (c) Exhibits 2.1 Purchase and Sale Agreement dated as of October 8, 2001 between Stone Energy Corporation and Conoco Inc. and Conoco Offshore Pipe Line Company 2.2 Share and Pipeline Purchase Agreement dated as of October 8, 2001 between Stone Energy Corporation and Conoco Inc. and Conoco Offshore Pipe Line Company 23.1 Consent of PricewaterhouseCoopers LLP. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. STONE ENERGY CORPORATION Date: January 15, 2002 By: /s/ James H. Prince --------------------------------------- James H. Prince Vice President and Chief Financial Officer INDEX TO FINANCIAL STATEMENTS FINANCIAL STATEMENTS OF THE ACQUIRED PROPERTIES: Report of Independent Accountants.......................................... F-2 Statement of Combined Revenues and Direct Operating Expenses of the Acquired Properties for the Nine Months Ended September 30, 2001 and for the Year Ended December 31, 2000.......................... F-3 Notes to the Statement of Combined Revenues and Direct Operating Expenses.. F-4 Supplementary Oil and Gas Disclosures (Unaudited).......................... F-5 UNAUDITED CONDENSED PRO FORMA FINANCIAL INFORMATION: Unaudited Condensed Pro Forma Consolidated Balance Sheet of Stone Energy Corporation as of September 30, 2001.............................. F-7 Unaudited Condensed Pro Forma Consolidated Statement of Operations of Stone Energy Corporation for the Nine Months Ended September 30, 2001... F-8 Unaudited Condensed Pro Forma Consolidated Statement of Operations of Stone Energy Corporation for the Year Ended December 31, 2000..... F-9 Notes to Unaudited Condensed Pro Forma Consolidated Financial Statements... F-10 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Stone Energy Corporation: We have audited the accompanying Statement of Combined Revenues and Direct Operating Expenses of the Acquired Properties for the nine months ended September 30, 2001 and for the year ended December 31, 2000. This financial statement is the responsibility of Conoco Inc's and Stone Energy Corporation's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying financial statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Stone Energy Corporation's Form 8-K and is not intended to be a complete presentation of the properties described above. In our opinion, the financial statement referred to above presents fairly, in all material respects, the combined revenues and direct operating expenses of the Acquired Properties as described in Note 2 for the nine-months ended September 30, 2001 and for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. PricewaterhouseCoopers LLP Houston, Texas January 15, 2002 THE ACQUIRED PROPERTIES STATEMENT OF COMBINED REVENUES AND DIRECT OPERATING EXPENSES (in thousands) Nine Months Ended Year Ended September 30, 2001 December 31, 2000 ------------------ ----------------- Revenues.................... $ 87,804 $ 156,379 Direct operating expenses... 12,631 14,094 ------------------ ----------------- Excess of revenues over direct operating expenses......... $ 75,173 $ 142,285 ================== ================= The accompanying notes are an integral part of this financial statement. THE ACQUIRED PROPERTIES NOTES TO THE STATEMENT OF COMBINED REVENUES AND DIRECT OPERATING EXPENSES NOTE 1 - THE PROPERTIES: On October 8, 2001, Stone Energy Corporation ("Stone") entered into definitive agreements with Conoco Inc., and one of its subsidiaries ("Conoco")to acquire through both stock and asset purchases, interests in eight oil and gas properties located in the Gulf of Mexico and other complementary infrastructure assets (the "Acquired Properties") for a total purchase price of $299.7 million. The acquisitions were completed on December 31, 2001. Estimated proved reserves associated with the Acquired Properties as of December 31, 2001 were 60.2 billion cubic feet of gas and 25.7 million barrels of oil. The Company funded the purchase of the Acquired Properties with borrowings under its revolving credit facility and net proceeds received from the issuance of $200 million of 8.25% senior subordinated notes due 2011. Based upon the Company's preliminary estimates, 9% of the purchase price, or approximately $27 million, was allocated to unevaluated oil and gas properties. NOTE 2 - BASIS OF PRESENTATION: The statement of combined revenues and direct operating expenses has been derived from Conoco's historical financial records. Revenues and direct operating expenses included in the accompanying statement represents Stone's acquired interest in the Acquired Properties and are prepared on the accrual basis of accounting. Revenues from the production of oil and gas properties are recorded on the basis of sales to third-party customers. Differences between these sales and our share of production are not significant. During the periods presented, the Acquired Properties were not accounted for as a separate division by Conoco and therefore certain costs, such as depreciation, depletion and amortization, general and administrative expenses, and corporate income taxes were not allocated to the individual properties nor would such allocated historical costs be representative of future costs. Additionally, full separate financial statements prepared in accordance with accounting principles generally accepted in the United States of America are not presented; as such information is neither readily available on an individual property basis nor practicable to obtain in these circumstances. These financial statements may not be representative of future operations. THE ACQUIRED PROPERTIES SUPPLEMENTARY OIL AND GAS DISCLOSURES (Unaudited) OIL AND GAS RESERVE QUANTITIES The following oil and gas reserve information was derived from the reserve report prepared by the Company as of December 31, 2001 based on studies performed by its petroleum engineering staff using information supplied by Conoco. The estimated proved reserve volumes presented for periods prior to the Company's December 31, 2001 reserve report were recomputed based on production from the Acquired Properties during the applicable periods presented. The following table presents the estimated remaining net proved and proved developed oil and gas reserves attributable to the Acquired Properties at September 30, 2001, December 31, 2000 and January 1, 2000, along with a summary of changes in the quantities of net remaining proved reserves during the nine months ended September 30, 2001 and the year ended December 31, 2000. Proved reserves are estimated quantities of crude oil and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. ESTIMATED NET QUANTITIES OF OIL AND GAS RESERVES ATTRIBUTED TO THE ACQUIRED PROPERTIES Crude Oil Natural Gas (MBbl) (MMcf) --------- ----------- Estimated total proved reserves: January 1, 2000............................ 32,354 78,646 Production for 2000...................... 3,698 11,769 --------- ----------- December 31, 2000.......................... 28,656 66,877 --------- ----------- Production for the nine months of 2001... 2,156 3,699 --------- ----------- September 30, 2001......................... 26,500 63,178 ========= =========== Estimated proved developed reserves: January 1, 2000.......................... 27,000 68,364 December 31, 2000........................ 23,302 56,595 September 30, 2001....................... 21,146 52,896 STANDARDIZED MEASURES OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES The following information has been developed utilizing procedures prescribed by Statement of Financial Accounting Standards No. 69, Disclosures about Oil and Gas Producing Activities ("FAS 69") and was derived from the reserve report prepared by the Company as of December 31, 2001 based on natural gas and crude oil reserve and production volumes estimated by the Company's petroleum engineering staff. Estimated future net cash flow information presented for periods prior to the Company's December 31, 2001 reserve report were recomputed based on future development and operating costs and production associated with the Acquired Properties during the applicable periods presented. It may be useful for certain comparative purposes, but should not be solely relied upon in evaluating the Acquired Properties or their performance. Further, information contained in the following table should not be considered as representative of realistic assessments of future cash flows, nor should the Standardized Measure of Discounted Future Net Cash Flows be viewed as representative of the current value of the Acquired Properties. The Company believes that the following factors should be taken into account in reviewing the following information: (1) future costs and selling prices will probably differ from those required to be used in these calculations; (2) due to future market conditions and governmental regulations, actual rates of production achieved in future years may vary significantly from the rate of production assumed in the calculations; (3) a 10% discount rate may not be reasonable as a measure of the relative risk inherent in realizing future net oil and gas revenues; and (4) future net revenues may be subject to different rates of income taxation. THE ACQUIRED PROPERTIES SUPPLEMENTARY OIL AND GAS DISCLOSURES (Unaudited) (Continued) Under the Standardized Measure, future cash inflows were estimated by applying period-end oil and natural gas prices to the estimated future production of period-end proved reserves. The prices used for the September 30, 2001 calculation were $22.00 per barrel of oil and $2.16 per Mcf of gas. Year-end 2000 prices used were $29.72 per barrel of oil and $10.71 per Mcf of gas. Future cash inflows were reduced by estimated future development, abandonment and production costs based on period-end costs in order to arrive at net cash flow before tax. Future income tax expense has been computed by applying period-end statutory tax rates to aggregate future pre-tax net cash flows, reduced by the tax basis of the properties involved. FAS 69 requires the use of a 10% discount rate. Management does not rely solely upon the following information in making investment and operating decisions. Such decisions are based upon a wide range of factors, including estimates of probable as well as proved reserves and varying price and cost assumptions considered more representative of a range of possible economic conditions that may be anticipated. The Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves attributed to the Acquired Properties is as follows: Nine Months Ended Year Ended September 30, 2001 December 31, 2000 ------------------ ----------------- (in thousands) Future cash inflows........................................... $724,220 $1,572,808 Less related future: Production costs.......................................... 142,876 155,506 Development and abandonment costs......................... 65,663 90,111 ------------------ ----------------- Future net cash flows before income taxes..................... 515,681 1,327,191 Income tax expense............................................ (157,831) (405,139) ------------------ ----------------- Future net cash flows net of taxes............................ 357,850 922,052 10% annual discount for estimated timing of cash flows........ (109,206) (268,324) ------------------ ----------------- Standardized measure of discounted future net cash flows...... $248,644 $653,728 ================== =================
A summary of the changes in standardized measure of discounted future net cash flows relating to proved oil and gas reserves attributed to the Acquired Properties is as follows: Nine Months Ended Year Ended September 30, 2001 December 31, 2000 ------------------ ----------------- (in thousands) Beginning of period........................................... $653,728 $378,731 Revisions of previous estimates: Changes in prices and costs............................... (567,510) 525,864 Accretion of discount..................................... 93,967 53,063 Sales of oil and gas, net of production costs............. (75,173) (142,285) Development cost changes.................................. (32,598) (32,598) Net change in income taxes................................ 178,215 (134,047) Other..................................................... (1,985) 5,000 ------------------ ----------------- Net (decrease) increase....................................... (405,084) 274,997 ------------------ ----------------- End of period................................................. $248,644 $653,728 ================== =================
UNAUDITED CONDENSED PRO FORMA FINANCIAL INFORMATION Set forth below is certain unaudited condensed pro forma financial information with respect to Stone's acquisition of Conoco's interest in eight oil and gas properties and related infrastructure assets located in the Gulf of Mexico. The unaudited condensed pro forma consolidated balance sheet at September 30, 2001 gives effect to the acquisition as if it had occurred on September 30, 2001. The unaudited condensed pro forma consolidated income statements for the year ended December 31, 2000 and the nine months ended September 30, 2001 give effect to the acquisition as if it had occurred on January 1, 2000. Stone's historical results give retroactive effect to Stone's merger with Basin Exploration, Inc., which was accounted for under the pooling-of-interests method. The unaudited condensed pro forma consolidated financial statements should be read in conjunction with the notes thereto and the statement of combined revenues and direct operating expenses and related notes included elsewhere in this Form 8-K. STONE ENERGY CORPORATION UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 2001 (In thousands) STONE PRO FORMA COMBINED ASSETS HISTORICAL ADJUSTMENTS PRO FORMA --------------- -------------- ---------------- Current assets................................ $103,481 ($4,230) (a) $99,251 Oil and gas properties, net: Proved.................................... 593,268 272,754 (a) 949,641 83,619 (b) Unevaluated............................... 67,600 26,976 (a) 94,576 Other assets, net............................. 18,919 18,919 --------------- ---------------- Total assets............................ $783,268 $1,162,387 =============== ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................... $104,657 $104,657 Other current liabilities................. 4,192 4,192 --------------- ---------------- Total current liabilities............... 108,849 108,849 Long-term debt................................ 100,000 $295,500 (a) 395,500 Deferred tax liability........................ 34,417 29,267 (b) 63,684 Other long-term liabilities................... 11,690 11,690 --------------- ---------------- Total liabilities....................... 254,956 579,723 --------------- ---------------- Common stock.................................. 262 262 Additional paid in capital.................... 447,027 447,027 Retained earnings............................. 69,847 54,352 (b) 124,199 Other comprehensive income.................... 11,176 11,176 --------------- ---------------- Total stockholders' equity.............. 528,312 582,664 --------------- ---------------- Total liabilities and stockholders' equity $783,268 $1,162,387 =============== ================ The accompanying notes are an integral part of this balance sheet.
STONE ENERGY CORPORATION UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2001 (In thousands, except per share amounts) Stone Acquired Pro Forma Combined Pro Historical Properties Adjustments Forma ---------------- ------------ ------------- -------------- Revenues Oil and gas production............................. $331,371 $87,804 $419,175 Other income....................................... 2,441 2,441 ---------------- ------------- --------------- Total revenues.............................. 333,812 87,804 421,616 ---------------- ------------- --------------- Expenses Direct operating expenses.......................... 39,862 12,631 52,493 Production taxes................................... 5,255 5,255 Depreciation, depletion and amortization........... 126,061 $33,234 (c) 159,295 Write-down of oil and gas properties............... 237,741 (101,075) (g) 136,666 Interest........................................... 2,589 14,328 (d) 16,917 Salaries, general and administrative and other..... 11,860 113 (e) 11,973 Merger expenses.................................... 25,719 25,719 ---------------- ------------- --------------- Total expenses.............................. 449,087 12,631 408,318 ---------------- ------------- --------------- Net income (loss) before income taxes................ (115,275) 75,173 13,298 ---------------- ------------- --------------- Income tax provision (benefit): Current............................................ 500 500 Deferred........................................... (39,034) 42,979 (f) 3,945 ---------------- ------------- --------------- Total income taxes.......................... (38,534) 4,445 ---------------- ------------- --------------- Net income (loss).................................... (76,741) $75,173 $8,853 ================ ============= =============== Earnings (loss) per common share: Basic earnings (loss) per share.................... ($2.94) $0.34 ================ =============== Diluted earnings (loss) per share.................. ($2.94) $0.33 ================ =============== Average shares outstanding......................... 26,084 26,084 ================ =============== Average shares outstanding assuming dilution....... 26,084 26,456 ================ =============== The accompanying notes are an integral part of this statement.
STONE ENERGY CORPORATION UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 (In thousands, except per share amounts) Stone Acquired Pro Forma Combined Pro Historical Properties Adjustments Forma ---------------- ------------- ---------------- ------------- Revenues Oil and gas production............................. $381,938 $156,379 $538,317 Other income....................................... 4,228 4,228 ---------------- ------------- ------------- Total revenues.............................. 386,166 156,379 542,545 ---------------- ------------- ------------- Expenses Direct operating expenses.......................... 49,081 14,094 63,175 Production taxes................................... 6,538 6,538 Depreciation, depletion and amortization........... 110,859 $44,848 (c) 155,707 Interest........................................... 9,395 19,209 (d) 28,604 Salaries, general and administrative and other..... 14,447 150 (e) 14,597 Merger expenses.................................... 1,297 1,297 ---------------- ------------- ------------- Total expenses.............................. 191,617 14,094 269,918 ---------------- ------------- ------------- Net income before income taxes....................... 194,549 142,285 272,627 ---------------- ------------- ------------- Income tax provision: Current............................................ 450 450 Deferred........................................... 67,642 27,327 (f) 94,969 ---------------- ------------- ------------- Total income taxes.......................... 68,092 95,419 ---------------- ------------- ------------- Net income........................................... $126,457 $142,285 $177,208 ================ ============= ============= Earnings per common share: Basic earnings per share........................... $4.90 $6.87 ================ ============= Diluted earnings per share......................... $4.80 $6.73 ================ ============= Average shares outstanding......................... 25,804 25,804 ================ ============= Average shares outstanding assuming dilution....... 26,335 26,335 ================ ============= The accompanying notes are an integral part of this statement.
STONE ENERGY CORPORATION NOTES TO UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION: On October 8, 2001, Stone Energy Corporation ("Stone") entered into definitive agreements with Conoco Inc., and one of its subsidiaries to acquire through both stock and asset purchases, interests in eight oil and gas properties located in the Gulf of Mexico and other complementary infrastructure assets (the "Acquired Properties") for a total purchase price of $299.7 million. The acquisitions were completed on December 31, 2001. Estimated proved reserves associated with the Acquired Properties as of December 31, 2001 were 60.2 billion cubic feet of gas and 25.7 million barrels of oil. The Company funded the purchase of the Acquired Properties with borrowings under its revolving credit facility and net proceeds received from the issuance of $200 million of 8.25% senior subordinated notes due 2011. The unaudited condensed pro forma consolidated balance sheet at September 30, 2001 gives effect to the acquisition as if it had occurred on September 30, 2001. The unaudited condensed pro forma consolidated statements of operations for the year ended December 31, 2000 and the nine months ended September 30, 2001 give effect to the acquisition as if it had occurred on January 1, 2000. Accounting policies used in the preparation of the unaudited condensed pro forma consolidated financial statements are those disclosed in Stone's historical consolidated financial statements. The preparation of the unaudited condensed pro forma consolidated financial statements is based on certain adjustments to Stone's historical financial statements and the statement of combined revenues and direct operating expenses of the Acquired Properties and are not necessarily indicative of the financial position or results of operations had the above described property acquisition occurred on the assumed dates, nor should you rely on the unaudited condensed pro forma information as an indication of future results. These unaudited condensed pro forma consolidated financial statements should be read in conjunction with the financial statement of the Acquired Properties included in this Form 8-K and of Stone contained in its Annual Report on Form 10-K for the year ended December 31, 2000, the Quarterly Report on Form 10-Q for the period ended September 30, 2001 and the Current Report on Form 8-K dated September 19, 2001. NOTE 2 - PRO FORMA ADJUSTMENTS: Pro forma entries necessary to adjust Stone's historical financial statements are as follows: (a) To record the net purchase price of the Acquired Properties financed with borrowings under Stone's credit facility and net proceeds from the issuance of $200 million of 8.25% senior subordinated notes due 2011. Based upon our preliminary estimates, approximately $27 million (9% of the $299.7 million purchase price) was allocated to unevaluated oil and gas properties. (b) To reflect the September 30, 2001 non-cash ceiling test write-down amount that would have been recorded had the acquisition occurred on September 30, 2001. (c) To adjust Stone's historical depreciation, depletion and amortization to amounts that would have been recorded had the acquisition occurred on January 1, 2000. (d) To record interest expense, net of amounts capitalized of $1.4 million and $1.9 million during 2001 and 2000, respectively, related to the borrowings under Stone's credit facility and the issuance of $200 million of 8.25% senior subordinated notes due 2011 to finance the acquisition. (e) To record an estimated increase in salaries, general and administrative costs, net of amounts capitalized of approximately $0.1 million during each of 2001 and 2000, respectively, primarily related to employee costs as a direct result of the acquisition. (f) To reflect Stone's historical tax rate during the applicable periods presented. (g) To reflect the September 30, 2001 non-cash ceiling test write-down amount that would have been recorded had the acquisition occurred on January 1, 2000. EX-2 3 exhibit2-1.txt PURCHASE AND SALE AGREEMENT PURCHASE AND SALE AGREEMENT by and between CONOCO INC. (formerly Continental Oil Company) Charter Number 0917525 and CONOCO OFFSHORE PIPE LINE COMPANY (ASSIGNOR) and STONE ENERGY CORPORATION (ASSIGNEE) --------------------- EWING BANK 305, MAIN PASS 144, MAIN PASS 290, MAIN PASS 311, SHIP SHOAL 176, SOUTH MARSH ISLAND 9, AND SOUTH MARSH ISLAND 107 FIELDS and SLEEPING TURTLE GATHERING FACILITIES, EUGENE ISLAND FLOWLINE SYSTEM, AND SOUTH MARSH ISLAND 288 PIPELINE Offshore, Louisiana --------------------- Dated October 8, 2001 Effective December 31, 2001 PURCHASE AND SALE AGREEMENT TABLE OF CONTENTS Page ARTICLE 1. PROPERTY DESCRIPTION...........................................1 1.1 The Property.................................................1 1.2 Exclusions from the Property.................................2 1.3 Ownership of Production from the Property....................5 1.4 Hydrocarbon Imbalances.......................................5 ARTICLE 2. CONSIDERATION..................................................6 2.1 Purchase Price...............................................6 2.2 Adjustments at Closing.......................................7 2.3 Adjustments after Closing....................................8 2.4 Payment Method...............................................9 2.5 Principles of Accounting.....................................9 2.6 Reporting Value of the Property..............................9 2.7 Section 1031 Exchange........................................9 ARTICLE 3. REPRESENTATIONS AND WARRANTIES.................................9 3.1 Reciprocal Representations and Warranties....................9 3.2 ASSIGNOR's Representations and Warranties....................10 3.3 ASSIGNEE's Representations and Warranties....................11 3.4 Limitation as to Environmental Matters.......................12 3.5 Notice of Changes............................................12 3.6 Representations and Warranties Exclusive.....................12 ARTICLE 4. DISCLAIMER OF WARRANTIES.......................................12 4.1 Title; Encumbrances..........................................12 4.2 Condition and Fitness of the Property........................12 4.3 Information About the Property...............................13 4.4 Information in Exhibits......................................14 4.5 Subrogation of Warranties....................................14 4.6 Disclaimers Deemed Conspicuous...............................14 ARTICLE 5. DUE DILIGENCE REVIEW OF THE PROPERTY...........................14 5.1 Records Review and Confidentiality...........................14 5.2 Physical Inspection..........................................14 5.3 Environmental Assessment.....................................15 5.4 Government Approvals.........................................17 5.5 Preferential Rights and Consents to Assign...................19 5.6 Title Defects................................................20 5.7 Casualty Losses and Government Takings.......................22 5.8 Termination Due to Impairments to the Property...............23 ARTICLE 6. CLOSING AND POST-CLOSING OBLIGATIONS...........................23 6.1 Closing Date.................................................23 6.2 Conditions to Closing........................................24 6.3 Closing......................................................26 6.4 Post-Closing Obligations.....................................27 ARTICLE 7. ASSUMED AND RETAINED RIGHTS AND OBLIGATIONS....................28 7.1 ASSIGNEE's Rights After Closing..............................28 7.2 ASSIGNEE's Obligations After Closing.........................28 7.3 ASSIGNOR's Obligations After Closing.........................29 7.4 Plugging and Abandonment Obligations.........................30 7.5 Environmental Obligations....................................31 ARTICLE 8. INDEMNITIES....................................................32 8.1 Definition of Claims.........................................32 8.2 Application of Indemnities...................................32 8.3 ASSIGNEE's Indemnity.........................................33 8.4 ASSIGNOR's Indemnity.........................................33 8.5 Notices and Defense of Indemnified Claims....................34 8.6 ASSIGNOR's Indemnity Limit...................................34 8.7 NORM.........................................................34 8.8 Pending Litigation and Claims................................34 8.9 Waiver of Consequential and Punitive Damages; Data Room Matters.........................................34 ARTICLE 9. TAXES AND EXPENSES.............................................35 9.1 Recording Expenses...........................................35 9.2 Ad Valorem, Real Property and Personal Property Taxes........35 9.3 Severance Taxes..............................................35 9.4 Tax and Financial Reporting..................................36 9.5 Sales and Use Taxes..........................................36 9.6 Income Taxes.................................................36 9.7 Incidental Expenses..........................................36 ARTICLE 10. OPERATIONS AFTER CLOSING......................................36 10.1 ASSIGNOR-Operated Properties................................36 10.2 ASSIGNEE's Approval.........................................37 ARTICLE 11. MISCELLANEOUS.................................................37 11.1 Preferential Right to Purchase and Process Production.......37 11.2 Dispute Resolution..........................................39 11.3 Suspense Accounts...........................................39 11.4 ASSIGNOR's Marks and Logos; Post-Closing Inspections........39 11.5 Survival of Representations and Warranties..................39 11.6 Public Announcements........................................39 11.7 Notices.....................................................40 11.8 Effective Date..............................................40 11.9 Binding Effect; Assignment..................................40 11.10 Entire Agreement and Amendment.............................41 11.11 Interpretation.............................................41 11.12 Third-Party Beneficiaries..................................42 11.13 Successors and Assigns.....................................42 11.14 Severability...............................................42 11.15 Counterparts...............................................42 11.16 Governing Law..............................................42 11.17 Exhibits...................................................42 11.18 Waiver.....................................................42 11.19 Default and Remedies.......................................42 INDEX OF DEFINED TERMS Page Adverse Environmental Condition............................................15 Agreement..................................................................1 Allocated Value............................................................9 ASSIGNEE...................................................................1 ASSIGNEE's Assumed Obligations.............................................28 Assignment Documents.......................................................26 ASSIGNOR...................................................................1 ASSIGNOR's Retained Obligations............................................29 Casualty Loss..............................................................22 Claims.....................................................................32 Closing....................................................................23 Closing Date...............................................................23 Code.......................................................................9 Conoco.....................................................................1 Consents...................................................................19 COPL.......................................................................1 Downstream Pipelines.......................................................2 Effective Date.............................................................1 Environmental Defect Value.................................................15 Environmental Laws.........................................................16 Environmental Obligations..................................................31 Final Settlement Statement.................................................8 Gaseous Hydrocarbons.......................................................37 Government Taking..........................................................22 Hart-Scott-Rodino Act......................................................19 Hydrocarbons...............................................................5 Includes...................................................................41 Inspector..................................................................15 Interim Period.............................................................36 Knowledge..................................................................41 Lease Property and Equipment...............................................2 Leases.....................................................................1 Liquid Hydrocarbons........................................................37 Miscellaneous Personal Property............................................2 MMS........................................................................11 NORM.......................................................................30 OCS........................................................................11 Overriding Royalty Interests...............................................2 Performance Deposit........................................................6 Permits and Easements......................................................2 Pipeline Inventory.........................................................5 Plugging and Abandonment Obligations.......................................30 Post-Sale Hydrocarbon Imbalances...........................................2 Pre-Sale Hydrocarbon Imbalances............................................4 Preferential Rights........................................................19 Preliminary Settlement Statement...........................................7 Property...................................................................1 Property Records...........................................................2 Property Taxes.............................................................35 Purchase Price.............................................................6 Related Contracts..........................................................2 Stock Tank Oil.............................................................5 STONE......................................................................1 Title Defect...............................................................20 Wells......................................................................2 PURCHASE AND SALE AGREEMENT LIST OF EXHIBITS A Schedule 1 - Oil and Gas Leasehold Interests and Units Schedule 2 - Wells Schedule 3 - Platforms, Pipelines, Other Immovables and Equipment, and Miscellaneous Personal Property Schedule 4 - Easements, Surface Leases, and Permits Schedule 5 - Related Contracts Schedule 6 - Overriding Royalty Interests Schedule 7 - Allocation of Purchase Price B B-1 - ASSIGNOR's Assignment Notice B-2 - ASSIGNEE's Assignment Notice C Pending Litigation and Claims Affecting the Property D Schedule 1 - Assignment of Record Title to Oil and Gas Lease Schedule 2 - Assignment of Oil and Gas Lease Operating Rights Schedule 3 - Bill of Sale Schedule 4 - Assignment of Overriding Royalty Interests E Assignment of Contracts F Nonforeign Affidavit G Production, Transportation and Processing Imbalances H Dispute Resolution Procedures I Form of Performance Bond PURCHASE AND SALE AGREEMENT (Ewing Bank 305, Main Pass 144, Main Pass 290, Main Pass 311, Ship Shoal 176, South Marsh Island 9, and South Marsh Island 107 Fields and Sleeping Turtle Gathering Facilities, Eugene Island Flowline System, and South Marsh Island 288 Pipeline) This Purchase and Sale Agreement (the "Agreement"), executed on October 8, 2001, and effective December 31, 2001 at 11:59 p.m., local time (the "Effective Date"), is between CONOCO INC.(formerly Continental Oil Company, Charter Number 0917525, "Conoco"), a Delaware corporation, with offices at 600 North Dairy Ashford, Houston, Texas 77079, CONOCO OFFSHORE PIPE LINE COMPANY ("COPL"), a Delaware corporation, with offices at 600 North Dairy Ashford, Houston, Texas 77079, and STONE ENERGY CORPORATION ("STONE"), a Delaware corporation with offices at 625 East Kaliste Saloom Road, Lafayette, Louisiana 70508. As used in this Agreement, the term "ASSIGNOR" means Conoco and (to the extent of the Downstream Pipelines) COPL, and the term "ASSIGNEE" means Stone. Notwithstanding any other provision to the contrary, but subject to Section 6.2.8, the representations, warranties, covenants, obligations, liabilities and indemnities of Conoco and COPL under this Agreement are several and not joint. RECITALS: -------- Conoco owns certain producing oil and gas properties in the Ewing Bank, Main Pass, Ship Shoal, and South Marsh Island Areas situated in the Gulf of Mexico, offshore the state of Louisiana, together with related facilities and contractual rights, and desires to assign its interest in this property and facilities, and transfer these contractual rights. COPL owns certain common carrier pipelines associated with such producing oil and gas properties and desires to assign its interest in this property. Stone desires to acquire Conoco's and COPL's interests in these properties, facilities and contractual rights. Therefore, Conoco, COPL and Stone agree to the sale of Conoco's and COPL's interests in these properties, facilities and contractual rights to Stone on the terms and conditions set forth in this Agreement. ARTICLE 1. PROPERTY DESCRIPTION -------------------- 1.1 The Property. Subject to the terms of this Agreement and except for the excluded items described under Section 1.2, ASSIGNOR shall sell, convey, and assign to ASSIGNEE and ASSIGNEE shall purchase, pay for, and accept all of ASSIGNOR's right and title to, and interest in, the following (collectively the "Property"): 1.1.1 The oil, gas and mineral lease(s), operating rights and other interests in oil and gas described in Exhibit A, Schedule 1, and all rights, privileges and obligations appurtenant to those interests and leases, together with all rights and interest in any unit in which such leases are included (to the extent that such rights and interests arise from and are associated with such leases and operating rights), INSOFAR AND ONLY INSOFAR AS those interests, rights and leases cover and include the lands, depths (being all depths unless otherwise specified) and rights described in Exhibit A, Schedule 1 (the "Leases"); 1.1.2 All oil, gas and condensate wells (whether producing, not producing or abandoned), water source, water injection and other injection or disposal wells and systems located on the Leases, including those described in Exhibit A, Schedule 2 (the "Wells"), together with all equipment, facilities, pipelines, flow lines, gathering systems (other than gas plant gathering systems), platforms, caissons, subsea equipment, tank batteries, improvements, fixtures, inventory, spare parts, tools, moveables, immovables, abandoned property and junk, and other personal property on the Leases or the sea floor covered by the Leases, or directly used held for use in developing or operating the Leases and Wells, or producing, treating, storing, compressing, processing or transporting Hydrocarbons on the Leases and Wells, including those items described in Exhibit A, Schedule 3 (the "Lease Property and Equipment"); 1.1.3 To the extent assignable or transferable, all permits, licenses, easements, rights-of-way, servitudes, land, surface leases, surface use agreements, and similar rights and interests applicable to or used in operating the Leases, Wells, Lease Property and Equipment or Overriding Royalty Interests, as described in Exhibit A, Schedule 4 (the "Permits and Easements"); 1.1.4 To the extent assignable or transferable, all contracts and contractual rights, obligations and interests INSOFAR ONLY as they cover and are attributable to the Leases, Wells, or Lease Property and Equipment, including without limitation unit agreements (and any declaration or order of any governmental authority associated therewith), farmout agreements, farmin agreements, operating agreements, and hydrocarbon sales, purchase, gathering, transportation, treating, marketing, exchange, processing and fractionating agreements, which include those described in Exhibit A, Schedule 5 (the "Related Contracts"); 1.1.5 Any overriding royalty interests, net profit interests or other oil and gas interests described in Exhibit A, Schedule 6 (the "Overriding Royalty Interests"), including all rights and obligations pertaining to the Overriding Royalty Interests under any of the Related Contracts; 1.1.6 All rights against and obligations to third parties with respect to any production, transportation and processing imbalances attributable to Hydrocarbons produced from the Property on and after the Effective Date (the "Post-Sale Hydrocarbon Imbalances"); 1.1.7 The pipelines downstream of the Leases as described in Exhibit A, Schedule 3, (the "Downstream Pipelines"); and 1.1.8 All other tangibles, miscellaneous interests or other assets on or directly used in connection with the Leases, Wells, Lease Property and Equipment, Permits and Easements, Related Contracts, Downstream Pipelines, or Overriding Royalty Interests (the "Miscellaneous Personal Property"), including copies of all lease files, land files, well files, geologic and interpretive maps, well logs, the right to use and analyze cores and other physical samples or materials from the Wells, core analyses and other well test results, production records, division order files, abstracts, title opinions, and contract files, insofar as they are directly related to the Leases (the "Property Records"). 1.2 Exclusions from the Property. The Property to be conveyed and assigned under this Agreement does not include: 1.2.1 Unless the parties otherwise agree in writing and enter into a separate data license agreement and except as expressly provided in Section 1.1.8, (i) seismic, geological, geochemical, or geophysical data (including cores and other physical samples or materials from wells or tests) belonging to ASSIGNOR or licensed from third parties, and (ii) interpretations of seismic, geological, geochemical or geophysical data belonging to ASSIGNOR or licensed from third parties; 1.2.2 ASSIGNOR's intellectual property used in developing or operating the Leases, Wells, Lease Property and Equipment, or Overriding Royalty Interests, including proprietary computer software, computer software licensed from third parties, patents, pending patent applications, trade secrets, copyrights, and names, marks and logos (all of which ASSIGNEE will remove as soon as possible after Closing); 1.2.3 ASSIGNOR's right, title and interest in the Permits and Easements, to the extent they are attributable and allocable to rights and interests retained by ASSIGNOR (if any); 1.2.4 ASSIGNOR's corporate, financial and tax records, and legal files, except that ASSIGNOR will provide ASSIGNEE with copies of any tax records that are necessary for ASSIGNEE's ownership, administration or operation of the Leases, Wells, Lease Property and Equipment, Related Contracts or Overriding Royalty Interests; 1.2.5 Notwithstanding any other provision of this Agreement to the contrary, any records or information that ASSIGNOR considers proprietary or confidential (including employee information and internal valuation data regarding the Leases, Wells, Lease Property and Equipment, Miscellaneous Personal Property, Related Contracts or Overriding Royalty Interests), or which ASSIGNOR cannot legally provide to ASSIGNEE because of third-party restrictions; 1.2.6 Trade credits and rebates from contractors and vendors, and adjustments or refunds attributable to any period before the Effective Date, including transportation tax credits and refunds, tariff refunds, take-or-pay claims, insurance premium adjustments, and audit adjustments under the Related Contracts; 1.2.7 Claims of ASSIGNOR for refund of or loss carry forwards with respect to (i) production, windfall profit, severance, ad valorem or any other taxes attributable to any period prior to the Effective Date, (ii) income or franchise taxes, or (iii) any taxes attributable to the excluded items described in this Section 1.2; 1.2.8 (i) All deposits, cash, checks in process of collection, cash equivalents and funds attributable to any period prior to the Effective Date, (ii) all accounts and notes receivable attributable to any period prior to the Effective Date, and (iii) any security or other deposits made with third parties prior to the Effective Date; 1.2.9 All proceeds, benefits, income or revenues attributable to periods prior to the Effective Date received in connection (i) with accounts and notes receivable relating to the Property (other than accounts receivable related to joint interest billings under applicable operating agreements) for the period between the Effective Date and the Closing Date, it being recognized and agreed that ASSIGNEE will receive full credit for such receivables pursuant to the provisions of Section 2.2.2, or (ii) any excluded items described in this Section 1.2; 1.2.10 Claims and causes of action arising from acts, omissions or events, or damage or destruction of the Property before the Effective Date, and all rights, titles, claims and interests of ASSIGNOR (i) under any policy or agreement of insurance or indemnity, (ii) under any bond or letter of credit, or (iii) to any insurance or condemnation proceeds or awards; 1.2.11 All rights, obligations, benefits, awards, judgments, and settlements, if any, applicable to the pending and potential litigation, Claims and proceedings listed under the section of Exhibit C entitled "ASSIGNOR's Responsibility"; 1.2.12 (i) All contracts for support services to which ASSIGNOR is a party (except for those contracts specifically listed as part of the Related Contracts in Exhibit A, Schedule 5), and the Related Contracts insofar as they pertain to oil and gas interests of ASSIGNOR other than the interests being assigned and conveyed to ASSIGNEE under this Agreement, and (ii) all offshore service agreements and charter party agreements to which ASSIGNOR is a party, whether or not services thereunder are or were utilized in connection with the property interests being assigned and conveyed to ASSIGNEE under this Agreement; 1.2.13 Any production sales contracts between ASSIGNOR and ASSIGNOR's affiliates or subsidiaries, and all swap, futures, or derivative contracts backed by or related to the Hydrocarbons; 1.2.14 (i) Any pipelines, facilities and equipment located on the Leases that were not used in the past or are not currently used or held for use in connection with the development or operation of the Leases and Wells or the production of Hydrocarbons from or in the Leases and Wells, and (ii) all gas processing plants and their associated facilities, pipelines and gathering lines, wherever located; 1.2.15 (i) All radio towers, remote terminal units, personal computer equipment, vehicles, communication equipment, and photocopy machines, wherever located, (ii) all leased vehicles and equipment for which ASSIGNEE does not assume the applicable lease under this Agreement, and (iii) all third party equipment and property located on or used in connection with the Leases, Wells, or Lease Property and Equipment, including contractor equipment; 1.2.16 ASSIGNOR's rights under any existing contracts providing for the gathering, compression, treating, transportation or processing of oil or gas produced from the Leases or Wells, other than those contracts listed on Exhibit A, Schedule 5 (ASSIGNEE will need to make its own arrangements for these matters with respect to its production from the Leases); 1.2.17 Any payments to ASSIGNOR from third parties relating to joint interest billings (including overhead charges) under applicable operating agreements and attributable to operations between the Effective Date and the first day of the month following the Closing Date, which ASSIGNOR shall be entitled to retain without adjustment to the Purchase Price; and 1.2.18 All rights against and obligations to third parties with respect to any production, transportation and processing imbalances which exist and are attributable to Hydrocarbons produced from the Property prior to the Effective Date (the "Pre-Sale Hydrocarbon Imbalances"). 1.3 Ownership of Production from the Property. 1.3.1 Production Before the Effective Date. (i) ASSIGNOR will own all merchantable oil, gas, condensate and gas liquids ("Hydrocarbons") produced from the Property before the Effective Date. If, on the Effective Date, Hydrocarbons produced from the Property before the Effective Date are stored in the Lease or unit stock tanks (the "Stock Tank Oil"), or in Lease or unit gathering lines or production facilities upstream of the sale or custody transfer meters of the purchaser or processor of Hydrocarbon production from the Property (the "Pipeline Inventory"), ASSIGNEE shall purchase from ASSIGNOR the merchantable Stock Tank Oil above pipeline connections in the stock tanks and the Pipeline Inventory for the market value which shall be based upon (1) for oil, ASSIGNOR's posted price for South Louisiana Sweet (Onshore) crude oil at Empire, Louisiana, less taxes and transportation fees deducted by the purchaser of such oil, and (2) for gas plant products, if any, the market value of the unsold inventory at the point of sale. ASSIGNEE will pay ASSIGNOR for the Stock Tank Oil and Pipeline Inventory as an adjustment to the Purchase Price at Closing, as provided in Section 2.2. (ii) The Stock Tank Oil and the Pipeline Inventory will be gauged and measured as of 7:00 a.m. local time where the Property is located on the Effective Date. ASSIGNOR and ASSIGNEE will accept the Lease or unit operator's tank gauge readings, meter tickets or other inventory records of the Stock Tank Oil and Pipeline Inventory. 1.3.2 Production After the Effective Date. ASSIGNEE will own all Hydrocarbons produced from the Property on and after the Effective Date. If the Effective Date precedes the Closing Date, ASSIGNOR will sell on ASSIGNEE's behalf all Hydrocarbons produced from the Property between the Effective Date and the Closing Date, and ASSIGNOR will credit ASSIGNEE for the proceeds of these sales as an adjustment at Closing, as provided in Section 2.2. Subject to any continuing sale obligations under the Related Contracts, and ASSIGNOR's preferential right to purchase Hydrocarbons from the Property, as provided in Section 11.1, ASSIGNEE may sell Hydrocarbons produced from the Property on and after the Closing Date as it deems appropriate. 1.4 Hydrocarbon Imbalances. ASSIGNOR represents to ASSIGNEE that, although ASSIGNOR will make a good faith attempt to balance the Property to zero as of the Effective Date, as indicated in Exhibit G, certain imbalances may exist with third parties as a result of production, transportation, processing or sales of Hydrocarbons attributable to ASSIGNOR's ownership of Hydrocarbons produced from the Property prior to the Effective Date. The imbalances are such that ASSIGNOR is either entitled to make up or receive delivery of Hydrocarbons, or payments in lieu thereof, in accordance with the provisions of certain applicable gas balancing and other agreements. ASSIGNEE and ASSIGNOR agree that all liabilities, duties, obligations, benefits and entitlements with respect to all such imbalances are specifically reserved by ASSIGNOR, and that ASSIGNOR retains all of its contractual rights with third parties as a result of such imbalances, but retains no right to balance any such Hydrocarbons in kind from ASSIGNEE's share of production from the Leases. ASSIGNEE and ASSIGNOR further agree that the existence of such imbalances owed by or to ASSIGNOR shall not be deemed to be a Title Defect, and that ASSIGNEE has no liabilities, duties, obligations, benefits or entitlements whatsoever to any such imbalances. To the extent ASSIGNEE is requested to deliver Hydrocarbons from the Leases after the Effective Date to any third party as a result of any imbalance in existence as of the Effective Date, ASSIGNOR hereby covenants and further agrees promptly to deliver to ASSIGNEE, upon ASSIGNEE's written demand, a like quantity and quality of Hydrocarbons. Said Hydrocarbons will be delivered by ASSIGNOR to ASSIGNEE at a mutually acceptable location whereby ASSIGNEE receives the same value, giving consideration to all relevant factors, including location, transportation costs, pipeline fuel charges, and differences in pipeline fuel charges and quality and heating content. To the extent ASSIGNOR is entitled to make up or receive delivery of Hydrocarbons from other co-owners in the Leases after the Effective Date as a result of any imbalance in existence as of the Effective Date, and ASSIGNOR is unable to secure a payment or other delivery of the imbalance elsewhere than at the Leases, ASSIGNEE hereby covenants and further agrees to receive such Hydrocarbons for the account of ASSIGNOR, upon ASSIGNOR's written request, and to redeliver such Hydrocarbons to ASSIGNOR. If ASSIGNOR and ASSIGNEE determine no later than one (1) year after Closing that the Pre-Sale Hydrocarbon Imbalances stated in Exhibit G are inaccurate, the parties agree that the remedies provided in this Section 1.4 are their sole remedies for any difference between the Pre-Sale Hydrocarbon Imbalances set forth in Exhibit G and the correct Pre-Sale Hydrocarbon Imbalances determined by the parties, all other remedies as between ASSIGNOR and ASSIGNEE being waived and released regardless of when any inaccuracy may be discovered or adjustments in balancing accounts may be made. ARTICLE 2. CONSIDERATION ------------- 2.1 Purchase Price. 2.1.1 Amount Due at Closing. At Closing, ASSIGNEE will pay ASSIGNOR Two Hundred Forty Six Million, Three Hundred Thousand dollars (U.S. $246,300,000.00) for the Property (the "Purchase Price"), adjusted by the Closing adjustments specified in Section 2.2. The Purchase Price will be subject to the further post-Closing adjustments specified in Section 2.3. For purposes of this Agreement and for federal income tax purposes, the Purchase Price will be allocated among the various portions of the Property and among depreciable assets and nondepreciable (or depletable) assets as provided in Exhibit A, Schedule 7. 2.1.2 Performance Deposit. Upon execution of this Agreement, ASSIGNEE shall pay to ASSIGNOR ten percent (10%) of the Purchase Price (U.S. $24,630,000.00) as a performance deposit ("Performance Deposit") on the Property to be transferred to ASSIGNEE to assure ASSIGNEE's performance under this Agreement. The Performance Deposit is solely to assure the performance of ASSIGNEE pursuant to the terms and conditions of this Agreement. If ASSIGNEE refuses or is unable for any reason (including failure to obtain financing) to close the transaction in accordance with the terms of this Agreement, ASSIGNOR may, at its sole option, retain the Performance Deposit as agreed liquidated damages and not as a penalty. However, if this Agreement is terminated pursuant to the provisions of Sections 5.3 (Environmental Assessment), 5.4 (Governmental Approvals), 5.6 (Title Defects), 5.7 (Casualty Loss), 5.8 (Termination Due to Impairments to the Property) or 11.19.2 (ASSIGNEE's Remedies) of this Agreement, the Performance Deposit shall be returned without interest as provided in this Agreement. If Closing occurs, ASSIGNOR at its sole option may either (i) return the Performance Deposit to ASSIGNEE, without interest, at Closing, in which case ASSIGNEE must pay ASSIGNOR the full amount of the Purchase Price at Closing, adjusted as provided in Section 2.2, or (ii) retain and credit the Performance Deposit against the Purchase Price at Closing, in which case ASSIGNEE must pay ASSIGNOR an amount equal to the Purchase Price, adjusted as provided in Section 2.2, less the Performance Deposit. If preferential rights are exercised on any portion of the Property such that ASSIGNEE will not be acquiring that portion, ASSIGNOR shall return to ASSIGNEE without interest a proportionate amount of the Performance Deposit allocable (based on the Allocated Values) to such portion of the Property, and the remaining amount of the Performance Deposit shall become the Performance Deposit for the remainder of the Property. 2.2 Adjustments at Closing. 2.2.1 Preliminary Settlement Statement. At Closing, the Purchase Price will be adjusted as set forth in Sections 2.2.2 and 2.2.3. No later than five (5) business days prior to Closing, ASSIGNOR will provide ASSIGNEE a Preliminary Settlement Statement identifying all adjustments to the Purchase Price to be made at Closing (the "Preliminary Settlement Statement"). ASSIGNOR and ASSIGNEE acknowledge that some items in the Preliminary Settlement Statement may be estimates or otherwise subject to change in the Final Settlement Statement for the Property, to be prepared pursuant to Section 2.3. 2.2.2 Upward Adjustments. The Purchase Price will be increased by the following expenses and revenues: (i) ASSIGNOR's share of all actual production expenses, operating expenses, overhead charges under applicable operating agreements and capital expenditures paid or incurred by ASSIGNOR in connection with the Property (including without limitation royalties, minimum royalties, rentals, and prepaid charges), to the extent they are attributable to ownership or operation of the Property on and after the Effective Date; provided that with respect to those portions of the Property for which ASSIGNOR is a one hundred percent (100%) working interest owner, all attributable costs of production, including overhead charges, shall be computed in accordance with ASSIGNOR's existing accounting practices; (ii) ASSIGNOR's share of any proceeds from the sale of Hydrocarbon production and other income from the Property received by ASSIGNEE, to the extent they are attributable to the ownership or operation of the Property before the Effective Date, and the value of the Stock Tank Oil and the Pipeline Inventory; and (iii)Any other increases in the Purchase Price specified in this Agreement or otherwise agreed in writing between ASSIGNOR and ASSIGNEE prior to or at Closing. 2.2.3 Downward Adjustments. The Purchase Price will be decreased by the following expenses and revenues: (i) ASSIGNOR's share of all actual production expenses, operating expenses, overhead charges under applicable operating agreements and capital expenditures paid or incurred by ASSIGNEE in connection with the Property (including without limitation royalties, minimum royalties, rentals, and prepaid charges), to the extent they are attributable to operation of the Property before the Effective Date (except as provided in Section 2.2.2(iii); provided that with respect to those portions of the Property for which ASSIGNOR is a one hundred percent (100%) working interest owner, all attributable costs of production, including overhead charges, shall be computed in accordance with ASSIGNOR's existing accounting practices; (ii) ASSIGNOR's share of any proceeds from the sale of Hydrocarbon production (before deduction of any royalties under the applicable pricing provisions of any oil, gas and gas plant liquids sales and processing agreements) and other income received by ASSIGNOR from the Property, to the extent they are attributable to the ownership or operation of that Property on and after the Effective Date; and (iii)Any other decreases in the Purchase Price specified in this Agreement or otherwise agreed in writing between ASSIGNOR and ASSIGNEE prior to or at Closing. 2.3 Adjustments after Closing. 2.3.1 Final Settlement Statement. Within 120 days after Closing, ASSIGNOR will prepare a final settlement statement for the Property containing a final reconciliation of the adjustments to the Purchase Price specified in Section 2.2 (the "Final Settlement Statement"). (However, failure of ASSIGNOR to complete the Final Settlement Statement within 120 days after Closing will not constitute a waiver of any right to an adjustment otherwise due.) ASSIGNEE will have 30 days after receiving the Final Settlement Statement to provide ASSIGNOR with written exceptions to any items in the Final Settlement Statement that ASSIGNEE believes in good faith to be questionable. All items in the Final Settlement Statement to which ASSIGNEE does not except within the 30-day review period will be deemed correct. 2.3.2 Payment of Post-Closing Adjustments. Any additional adjustments to the Purchase Price (including disputed items) will be offset against each other so that only one payment is required. The party owing payment will pay the other party the net post-closing adjustment to the Purchase Price within 10 days after the expiration of ASSIGNEE's 30-day review period for the Final Settlement Statement. However, the payment of any disputed items will be subject to the further rights of the parties under Section 2.3.3. 2.3.3 Resolution of Disputed Items. After the completion and delivery of the Final Settlement Statement, the parties agree to negotiate in good faith to attempt to reach agreement on the amount due with respect to any disputed items in the Final Settlement Statement. If the parties reach agreement on the amount due with respect to any disputed items, and a payment adjustment is required, the party owing payment will pay the other party within 10 days after the parties reach agreement. If the parties are unable to agree on the amount due with respect to any disputed items within 60 days after ASSIGNOR receives ASSIGNEE's written exceptions to the Final Settlement Statement, then the dispute shall be resolved under the dispute resolution provisions of Exhibit H. 2.3.4 Further Revenues and Expenses. After the completion of the post-Closing adjustments under this Section 2.3, (i) if either party receives revenues that belong to the other party under this Agreement, the party receiving the revenues agrees to promptly remit those revenues to the other party, and (ii) if either party pays expenses that are the responsibility of the other party under this Agreement, the party on whose behalf the expenses were paid agrees to promptly reimburse the other party for the expenses paid on its behalf upon receiving satisfactory evidence of such payment. However, neither party will be obligated to reimburse the other party for any such expense in excess of $5,000 unless it has been consulted about that expense prior to payment, unless that payment was required by a government agency or other government entity. 2.4 Payment Method. Unless the parties otherwise agree in writing, all payments under this Agreement will be by wire transfer in immediately available funds to the account(s) designated by the party receiving payment. 2.5 Principles of Accounting. The Preliminary Settlement Statement and Final Settlement Statement will be prepared in accordance with generally accepted accounting principles in the petroleum industry and with reasonable supporting documentation for each item in those statements. 2.6 Reporting Value of the Property. Neither party will take any position in preparing financial statements, tax returns, reports to shareholders or governmental authorities, or otherwise, that is inconsistent with allocation of value for the Property in Exhibit A, Schedule 7, unless the parties otherwise agree in writing. The value assigned to each portion of the Property in Exhibit A, Schedule 7 is hereafter referred to as the "Allocated Value" of that portion of the Property. 2.7 Section 1031 Exchange. ASSIGNOR and ASSIGNEE hereby agree that either ASSIGNOR or ASSIGNEE shall have the right at any time prior to Closing to assign all or a portion of its rights under this Agreement to a Qualified Intermediary (as that term is defined in Section 1.1031(k)-1(g)(4)(v) of the Treasury Regulations) in order to accomplish the transaction in a manner that will comply, either in whole or in part, with the requirements of a like-kind exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended, (the "Code"). In the event either party assigns its rights under this Agreement pursuant to this Section 2.7, such party agrees to notify the other party in writing of such assignment at or before Closing. If ASSIGNOR assigns its rights under this Agreement for this purpose, ASSIGNEE agrees to (i) consent to ASSIGNOR's assignment of its rights in this Agreement in form attached hereto as Exhibit B-1, and (ii) pay the Purchase Price into a qualified escrow or qualified trust account at Closing as directed in writing. If ASSIGNEE assigns its rights under this Agreement for this purpose, ASSIGNOR agrees to (i) consent to ASSIGNEE's assignment of its rights in this Agreement in the form of Exhibit B-2, (ii) accept the Purchase Price from the qualified escrow or qualified trust account at Closing, and (iii) at Closing, convey and assign directly to ASSIGNEE the Property which is the subject of this Agreement upon satisfaction of the other conditions to Closing and other terms and conditions hereof. ASSIGNOR and ASSIGNEE acknowledge and agree that any assignment of this Agreement to a Qualified Intermediary shall not release either party from any of their respective liabilities and obligations to each other under this Agreement, and that neither party represents to the other that any particular tax treatment will be given to either party as a result thereof. ARTICLE 3. REPRESENTATIONS AND WARRANTIES ------------------------------ 3.1 Reciprocal Representations and Warranties. By their execution of this Agreement, ASSIGNOR and ASSIGNEE each represent and warrant that the following statements are true and accurate as to itself, as of the execution date of this Agreement, the Effective Date and the Closing Date. 3.1.1 Corporate Authority. It is a corporation duly organized and in good standing under the laws of its state of incorporation, is duly qualified to carry on its business in the states or jurisdictions where the Property is located, and has all the requisite power and authority to enter into and perform this Agreement. 3.1.2 Requisite Approvals. Upon execution of this Agreement, it will have taken all necessary actions pursuant to its articles of incorporation, by-laws and other governing documents to fully authorize (i) the execution and delivery of this Agreement and any transaction documents related to this Agreement; and (ii) the consummation of the transaction contemplated by this Agreement. 3.1.3 Validity of Obligation. This Agreement and all other transaction documents it is to execute and deliver on or before the Closing Date (i) have been duly executed by its authorized representatives; (ii) constitute its valid and legally binding obligations; and (iii) are enforceable against it in accordance with their respective terms. 3.1.4 No Violation of Contractual Restrictions. Its execution, delivery and performance of this Agreement does not conflict with or violate any agreement or instrument to which it is a party or by which it is bound, except any provision contained in agreements customary in the oil and gas industry relating to (i) the preferential right to purchase all or any portion of the Property; (ii) required consents to transfer and related provisions; (iii) maintenance of uniform interest provisions; and (iv) any other third-party approvals or consents contemplated in this Agreement. 3.1.5 No Violation of Other Legal Restrictions. Its execution, delivery and performance of this Agreement does not violate any law, rule, regulation, ordinance, judgment, decree or order to which it or the Property is subject. 3.1.6 No Restraining Litigation. To its knowledge and subject to those matters listed in Exhibit C, there is no action, suit, proceeding, claim or investigation by any person, entity, administrative agency or governmental body pending or, to its knowledge, threatened, against it before any court or governmental agency that seeks to restrain or prohibit, or to obtain substantial damages from it, with respect to this Agreement or the consummation of all or part of the transaction contemplated in this Agreement. 3.1.7 Bankruptcy. There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by, or to its actual knowledge, threatened against it. 3.1.8 Broker's Fees. It has not incurred any obligation for brokers, finders or similar fees for which the other party would be liable. 3.2 ASSIGNOR's Representations and Warranties. By its execution of this Agreement, ASSIGNOR represents and warrants to ASSIGNEE that the following statements are true and accurate, as of the execution date of this Agreement, the Effective Date and the Closing Date. 3.2.1 Mortgages and Other Instruments. The transfer of the Property to ASSIGNEE does not violate any covenants or restrictions imposed on ASSIGNOR by any bank or other financial institution in connection with a mortgage or other instrument, and will not result in the creation or imposition of a lien on any portion of the Property. 3.2.2 Compliance with Laws. Except as disclosed by ASSIGNOR in writing prior to Closing and limited by Section 3.4, if ASSIGNOR is the operator of the Property, to ASSIGNOR's knowledge, it is in compliance with all laws, rules, regulations and orders pertaining to the Property. 3.2.3 Permits. Except as disclosed by ASSIGNOR in writing prior to Closing and limited by Section 3.4, if ASSIGNOR is the operator of the Property, to ASSIGNOR's knowledge, it has all governmental permits necessary for the operation of the Property and is not in default under any permit, license or agreement relating to the operation and maintenance of the Property. 3.2.4 Lawsuits and Claims. Except as disclosed in Exhibit C to this Agreement and limited by Section 3.4, to ASSIGNOR's knowledge, there is no demand or lawsuit, nor any compliance order, notice of probable violation or similar governmental action, pending or threatened before any court or governmental agency that (i) would result in an impairment or loss of title to any part of the Property, or substantial impairment of the value thereof, or (ii) would hinder or impede the operation of the Property. 3.3 ASSIGNEE's Representations and Warranties. By its execution of this Agreement, ASSIGNEE represents and warrants to ASSIGNOR that the following statements are true and accurate, as of the execution date of this Agreement, the Effective Date and the Closing Date. 3.3.1 Independent Evaluation. ASSIGNEE is an experienced and knowledgeable investor in the oil and gas business. ASSIGNEE has been advised by and has relied solely on its own expertise and legal, tax, reservoir engineering and other professional counsel concerning this transaction, the Property and the value thereof. 3.3.2 Qualification. ASSIGNEE is now or at Closing will be, and thereafter will continue to be, qualified to own and operate any federal or state of Louisiana oil, gas and mineral leases that constitute part of the Property, including meeting all bonding requirements. Consummating the transaction contemplated in this Agreement will not cause ASSIGNEE to be disqualified or to exceed any acreage limitation imposed by law, statute or regulation. 3.3.3 Securities Laws and ASSIGNEE's Other Dealings. ASSIGNEE has complied with all federal and state securities laws applicable to the sale of the Property and will comply with such laws if it subsequently disposes of all or any part of the Property. ASSIGNEE is acquiring the Property for its own account and not with a view to, or for offer of resale in connection with, a distribution thereof, within the meaning of the Securities Act of 1933, 15 U.S.C.ss.77a et seq., and any other rules, regulations, and laws pertaining to the distribution of securities. Except for traditional mortgage financing from reputable financial institutions, ASSIGNEE has not sought or solicited, nor is ASSIGNEE participating with, investors, partners or other third parties in order to fund the Purchase Price or the Performance Deposit and to close this transaction, and all funds used by ASSIGNEE in connection with this transaction are ASSIGNEE's own funds. 3.3.4 Governmental Bonding. ASSIGNEE is unaware of any fact or circumstance which would preclude or inhibit unconditional approval of ASSIGNOR's assignment(s) of that portion of the Property which constitutes state or federal oil, gas and mineral leases in the Outer Continental Shelf ("OCS") of the Gulf of Mexico to ASSIGNEE by the state of Louisiana or the Minerals Management Service of the United States Department of the Interior ("MMS"), as the case may be, including meeting existing or increased area-wide bonding or any other bonding requirements of the MMS. 3.3.5 MMS Operator's Bond Qualification. ASSIGNEE is unaware of any fact or circumstance which would preclude or inhibit ASSIGNEE's qualification to operate the federal oil, gas and mineral leases and pipeline(s) subject hereto in the Gulf of Mexico OCS, for which ASSIGNEE is seeking operatorship, including meeting the existing or increased area-wide bonding or any other bonding or supplemental security requirements of the MMS. 3.3.6 ASSIGNEE's Funds. ASSIGNEE has arranged or will arrange to have available by the Closing Date sufficient funds to enable the ASSIGNEE to pay in full the Purchase Price as herein provided and otherwise to perform its obligations under this Agreement without financing that is subject to any material contingency. 3.3.7 ASSIGNEE Financial Statements. ASSIGNEE's financial statements supplied to ASSIGNOR, together with the notes thereto, are complete and correct in all material respects and present fairly the financial position and the results of operations of ASSIGNEE as of the dates and for the periods therein indicated, and all such statements have been prepared and conformed with accounting principles generally applied on a consistent basis throughout the periods involved. Since the last date of such financial statements, there has not been any material adverse change, however caused, in the business, assets, liabilities (actual or contingent), earnings, financial or other conditions or other operations of ASSIGNEE. 3.3.8 No Holding Company. ASSIGNEE is not (i) a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," or a "public utility company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (ii) subject in any respect to the provisions of that act. 3.3.9 No Investment Company. ASSIGNEE is not (i) an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, or (ii) subject in any respect to the provisions of that act. 3.4 Limitation as to Environmental Matters. The warranties and representations of ASSIGNOR in this Article 3 do not extend to environmental matters, permits, compliance with environmental laws and regulations, and environmental lawsuits and environmental Claims pertaining to the ownership or operation of the Property. All liabilities and obligations of ASSIGNOR and ASSIGNEE with respect to environmental matters, permits, compliance with environmental laws and regulations, and environmental lawsuits and environmental Claims pertaining to the ownership or operation of the Property will be governed solely and exclusively by the provisions of Sections 5.3, 5.8, 7.5, and 8.4, regardless of the warranties or representations in this Article 3. 3.5 Notice of Changes. Prior to Closing, ASSIGNOR and ASSIGNEE will each give the other prompt written notice of any matter materially affecting any of their representations or warranties under this Article 3 or rendering any such warranty or representation untrue or inaccurate. 3.6 Representations and Warranties Exclusive. All representations and warranties contained in this Agreement (including without limitation those in this Article 3 are exclusive, and are given in lieu of all other representations and warranties, express or implied. ARTICLE 4. DISCLAIMER OF WARRANTIES ------------------------ 4.1 Title; Encumbrances. ASSIGNOR CONVEYS THE PROPERTY TO ASSIGNEE SUBJECT TO ALL ROYALTIES, OVERRIDING ROYALTIES, BURDENS, LIENS, ENCUMBRANCES, AND SURFACE RIGHTS, AND WITHOUT WARRANTY OF TITLE, EXPRESS, STATUTORY, OR IMPLIED. 4.2 Condition and Fitness of the Property. Except as expressly set forth in this Agreement, ASSIGNOR CONVEYS THE PROPERTY TO ASSIGNEE WITHOUT ANY EXPRESS, STATUTORY OR IMPLIED WARRANTY OR REPRESENTATION OF ANY KIND, INCLUDING WARRANTIES RELATING TO (i) THE CONDITION OR MERCHANTABILITY OF THE PROPERTY, (ii) THE FITNESS OF THE PROPERTY FOR A PARTICULAR PURPOSE, OR (iii) CONFORMITY TO MODELS OR SAMPLES OF MATERIALS. ASSIGNEE HAS INSPECTED, OR BEFORE CLOSING WILL INSPECT OR WILL HAVE BEEN GIVEN THE OPPORTUNITY TO INSPECT, THE PROPERTY AND IS SATISFIED AS TO THE PHYSICAL, OPERATING, REGULATORY COMPLIANCE, SAFETY, AND ENVIRONMENTAL CONDITION (BOTH SURFACE AND SUBSURFACE) OF THE PROPERTY AND ACCEPTS THE PROPERTY "AS IS," "WHERE IS," AND "WITH ALL FAULTS" and in its present condition and state of repair. Without limiting the generality of the foregoing, ASSIGNOR makes no representation or warranty as to (i) the amount, value, quality, quantity, volume or deliverability of any oil, gas or other minerals or reserves (if any) in, under or attributable to the Property, (ii) the physical, operating, regulatory compliance, safety or environmental condition of the Property (including the ability of any computer and electronic equipment comprising a part of the Property to recognize, properly compute, or otherwise function on or after January 1, 2000), or (iii) the geological or engineering condition of the Property or any value thereof. WITH RESPECT TO THE EASEMENTS, RIGHTS-OF-WAY AND PERMITS FOR THE PIPELINES COMPRISING A PART OF THE PROPERTY (INCLUDING THE DOWNSTREAM PIPELINES), ASSIGNOR EXPRESSLY DISCLAIMS, AND ASSIGNEE HEREBY WAIVES, ALL WARRANTIES AND REPRESENTATIONS THAT ASSIGNOR OWNS THE EASEMENTS, RIGHTS-OF-WAY AND PERMITS; THAT THEY ARE IN FORCE AND EFFECT; THAT THEY MAY BE ASSIGNED; THAT THEY ARE CONTIGUOUS; THAT THE PIPELINES LIE WITHIN THE EASEMENTS, RIGHTS-OF-WAY AND PERMITS; OR THAT THEY GRANT THE RIGHT TO LAY, MAINTAIN, REPAIR, REPLACE, OPERATE, CONSTRUCT, OR REMOVE THE PIPELINES. ASSIGNOR EXPRESSLY DISCLAIMS, AND ASSIGNEE HEREBY WAIVES, ALL WARRANTIES AND REPRESENTATIONS THAT THERE ARE ANY EASEMENTS, RIGHTS-OF-WAY, OR PERMITS IN FORCE AND EFFECT WITH RESPECT TO THE PIPELINES. If necessary, ASSIGNEE shall secure its own rights to operate and maintain the pipelines on the land of others at its own expense. If any consents of third parties are required to assign the easements, rights-of-way, permits, or other agreements with respect to the pipeline, ASSIGNEE shall secure any necessary consents to assign at its own expense; provided, however, ASSIGNOR shall provide such assistance to ASSIGNEE to secure the consents as may reasonably be required. 4.3 Information About the Property. Except as expressly set forth in this Agreement, the parties to this Agreement each disclaim all liability and responsibility for any representation, warranty, statements or communications (orally or in writing) to the other party (including, but not limited to, any information contained in any opinion, information or advice that may have been provided to any such party by any employee, officer, director, agent, consultant, engineer or engineering firm, trustee, representative, partner, member, beneficiary, stockholder or contractor of such disclaiming party or its affiliates) wherever and however made, including those made in any data room and any supplements or amendments thereto or during any negotiations with respect to this Agreement or any confidentiality agreement previously executed by the parties with respect to the Property. ASSIGNOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, STATUTORY OR IMPLIED, AS TO (i) THE ACCURACY, COMPLETENESS, OR MATERIALITY OF ANY DATA, INFORMATION OR RECORDS FURNISHED TO ASSIGNEE IN CONNECTION WITH THE PROPERTY; (ii) INFORMATION CONCERNING THE QUALITY AND QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTY; (iii) INFORMATION CONCERNING THE ABILITY OF THE PROPERTY TO PRODUCE HYDROCARBONS, INCLUDING WITHOUT LIMITATION PRODUCTION RATES, DECLINE RATES AND RECOMPLETION OPPORTUNITIES; (iv) GAS BALANCING OR PAYOUT ACCOUNT INFORMATION, ALLOWABLES, OR OTHER REGULATORY MATTERS, (v) THE PRESENT OR FUTURE VALUE OF THE ANTICIPATED INCOME, COSTS OR PROFITS, IF ANY, TO BE DERIVED FROM THE PROPERTY, (vi) THE ENVIRONMENTAL CONDITION OF THE PROPERTY, (vii) ANY PROJECTIONS AS TO EVENTS THAT COULD OR COULD NOT OCCUR, AND (viii) ANY OTHER MATTERS CONTAINED IN OR OMITTED FROM ANY INFORMATION OR MATERIAL FURNISHED TO ASSIGNEE BY ASSIGNOR. ANY DATA, INFORMATION OR OTHER RECORDS FURNISHED BY ASSIGNOR ARE PROVIDED TO ASSIGNEE AS A CONVENIENCE AND ASSIGNEE'S RELIANCE ON OR USE OF THE SAME IS AT ASSIGNEE'S SOLE RISK. 4.4 Information in Exhibits. ASSIGNOR MAKES NO REPRESENTATION OR WARRANTY AS TO THE COMPLETENESS OR ACCURACY OF THE INFORMATION CONTAINED IN EXHIBIT A, SCHEDULE 2 (WELLS), EXHIBIT A, SCHEDULE 3 (PLATFORMS, PIPELINES, AND OTHER IMMOVABLES AND EQUIPMENT), EXHIBIT A, SCHEDULE 4 (EASEMENTS, SURFACE LEASES, AND PERMITS) OR EXHIBIT A, SCHEDULE 5 (RELATED CONTRACTS). 4.5 Subrogation of Warranties. To the extent transferable, ASSIGNOR will give and grant to ASSIGNEE, its successors and assigns full power and right of substitution and subrogation in and to all covenants and warranties (including warranties of title) by preceding owners, vendors, or others, given or made with respect to the Property or any part thereof prior to the Effective Date of this Agreement. 4.6 Disclaimers Deemed Conspicuous. To the extent required to be operative, ASSIGNEE here agrees that the disclaimers of warranties contained in this Agreement are conspicuous disclaimers for the purpose of any applicable law, rule or order. ARTICLE 5. DUE DILIGENCE REVIEW OF THE PROPERTY ------------------------------------ 5.1 Records Review and Confidentiality. To allow ASSIGNEE to confirm ASSIGNOR's title and conduct other due diligence with respect to the Property, ASSIGNOR shall give ASSIGNEE, and ASSIGNEE's authorized representatives, at mutually agreeable times before Closing, access to all contract, land and lease, and operational records, to the extent such data and records are in ASSIGNOR's possession and relate to the Property. With ASSIGNOR's permission, ASSIGNEE may photocopy such records at its sole expense. ASSIGNEE shall keep confidential all information made available to ASSIGNEE until the later of the Closing Date or the Effective Date. This Agreement and the terms and provisions thereof, including the Purchase Price, shall be maintained confidential by ASSIGNEE until Closing; provided however that this Agreement and the terms and provisions thereof may be disclosed to ASSIGNEE's lenders, if any, and their consultants, who shall be required to keep such information confidential. Any confidentiality agreement previously executed by ASSIGNOR and ASSIGNEE with respect to the Property will continue in force until the later of the Closing Date or the Effective Date, and for as long thereafter as provided in the confidentiality agreement. ASSIGNEE shall take all reasonable steps necessary to ensure that ASSIGNEE's authorized representatives comply with the provisions of this Section 5.1 and any confidentiality agreement in effect. 5.2 Physical Inspection. Before Closing, (i) with respect to that portion of the Property operated by ASSIGNOR, ASSIGNOR will permit ASSIGNEE and its representatives, at their sole risk and expense, to conduct reasonable inspections of the Property at times approved by ASSIGNOR, and (ii) with respect to that portion of the Property not operated by ASSIGNOR, ASSIGNOR will attempt to obtain access to the Property, in accordance with the applicable operating agreements, for ASSIGNEE and its representatives, at their sole risk and expense, to conduct reasonable inspections of the Property at times approved by the operator of the Property. ASSIGNEE shall repair any damage to the Property resulting from its inspection and shall indemnify, defend and hold ASSIGNOR harmless from and against any and all Claims arising from ASSIGNEE inspecting and observing the Property, including, without limitation, (i) Claims for personal injuries to or death of employees of the ASSIGNEE, its contractors, agents, consultants and representatives, and damage to the property of ASSIGNEE or others acting on behalf of ASSIGNEE, regardless of whether and including such Claims arising out of or resulting, in whole or part, from the condition of the Property or ASSIGNOR's (or its employees', agents', contractors', successors' or assigns') sole or concurrent negligence, strict liability or fault, and (ii) Claims for personal injuries to or death of employees of ASSIGNOR or third parties, and damage to the property of ASSIGNOR or third parties, to the extent caused by the negligence, gross negligence or willful misconduct of ASSIGNEE. 5.3 Environmental Assessment. 5.3.1 Inspection. Up to five (5) days prior to Closing, the ASSIGNEE will have the right, at its sole cost, to conduct a Phase I environmental assessment of the Property. However, the Phase I environmental assessment must be conducted by an agent or representative (the "Inspector") of ASSIGNEE acceptable to both ASSIGNOR and ASSIGNEE. For purposes of this Agreement, a Phase I environmental assessment means (i) a review of ASSIGNOR's and the government's environmental records, (ii) the submission of pre-inspection questionnaires to ASSIGNOR, (iii) a site visit to visually inspect the Property, and (iv) interviews with corporate and site personnel of ASSIGNOR. A Phase I environmental assessment does not include soil or groundwater sampling or subsurface testing of any kind. 5.3.2 Inspection Results. Each party will be entitled to receive a copy of Inspector's Phase I review of the Property, including all written reports, data and conclusions. ASSIGNEE agrees not to disclose the Phase I inspection results for the Property, or any ASSIGNOR information reviewed during the Phase I environmental assessment, to third parties without the agreement of ASSIGNOR, except as required by law or by the order of a court or regulatory agency. This confidentiality obligation shall be effective for five (5) years after the Closing Date and will survive the termination of this Agreement for any reason. 5.3.3 Notice of Adverse Environmental Conditions. Prior to Closing, ASSIGNEE will review the inspection results for the Property and determine based on those results if any Adverse Environmental Conditions exist with respect to the Property. No later than twenty (20) business days before Closing, ASSIGNEE will notify ASSIGNOR in writing of any Adverse Environmental Condition with respect to the Property. Such notice shall describe in reasonable detail the Adverse Environmental Condition, include all data and information in ASSIGNEE's and the Inspector's possession or control bearing thereon, and include the estimated Environmental Defect Value attributable thereto. The "Environmental Defect Value" attributable to any Adverse Environmental Condition will be the estimated amount of all reasonable costs and Claims, net to ASSIGNOR's interest in the property, associated with the existence, remediation or correction of the Adverse Environmental Condition, as reasonably determined and estimated by the Inspector. The term "Adverse Environmental Condition" means and includes, with respect to any portion of the Property, (i) the failure of the Property to be in compliance with applicable Environmental Laws, (ii) the Property being subject to any agreements, consent orders, decrees, or judgments, in existence at this time based on any Environmental Laws that negatively impact the future use of any portion of the Property, or that require any change in the present conditions of any of the Property, or (iii) the Property being subject to any uncured notices of violations of or noncompliance with any applicable Environmental Laws; provided, however, that no matter shall be deemed to be or constitute an Adverse Environmental Condition unless the Environmental Defect Value attributable thereto exceeds $50,000, net to ASSIGNOR's interest in the Property. The term "Environmental Laws" means all laws, regulations, rules, codes, permits and orders relating to pollution or protection of the public health and the environment 5.3.4 Right and Remedies for Adverse Environmental Conditions. (i) With respect to any Adverse Environmental Condition affecting the Property, ASSIGNEE may (a) request ASSIGNOR to cure the environmental condition, but ASSIGNOR will have no obligation to cure the Adverse Environmental Condition, or (b) request an adjustment in the Purchase Price equal to the estimated value of the Adverse Environmental Condition. If ASSIGNOR and ASSIGNEE are unable to agree no later than 15 business days before Closing on curative measures or an adjustment in the Purchase Price with respect to any such Adverse Environmental Condition, the parties will have the rights and remedies set forth in subpart (ii) of this Section 5.3.4. (ii) The rights and remedies of the parties with respect to Adverse Environmental Conditions on the Property on which the parties cannot agree on curative measures or a Purchase Price adjustment are as follows: (a) If the collective value of the Adverse Environmental Conditions is less than two percent (2%) of the Purchase Price, the parties will be obligated to proceed with Closing as to all of the Property without curative action by ASSIGNOR with respect to such Adverse Environmental Conditions and without an adjustment to the Purchase Price. (b) If the collective value of the Adverse Environmental Conditions equals or exceeds two percent (2%) of the Purchase Price, either ASSIGNOR or ASSIGNEE may exclude the Property affected by the Adverse Environmental Condition, in which case the Purchase Price will be reduced by the Allocated Value of the excluded Property and the parties will be obligated to proceed with Closing, subject to the termination rights of the parties under Section 5.8 and subpart (c) of this Section 5.3.4. (c) If the collective value of the Adverse Environmental Conditions equals or exceeds twenty-five percent (25%) of the Purchase Price, either party may terminate this Agreement, and neither ASSIGNOR nor ASSIGNEE will have any further obligation to conclude the transfer of the Property under this Agreement. However, the right of termination under this subpart (c) must be exercised no later than 10 business days before Closing, after which both parties will be deemed to have waived their termination rights under this subpart (c) in connection with Adverse Environmental Conditions. (iii) Notwithstanding any agreement by ASSIGNOR to a attempt to cure an Adverse Environmental Condition or to reduce the Purchase Price due to an Adverse Environmental Condition with respect to the Property, or any other provision of this Agreement, ASSIGNEE at Closing will assume all Environmental Obligations with respect to the Property, as provided in Section 7.5. 5.3.5 Exclusive Remedies. The remedies set forth in this Section 5.3 are the sole and exclusive remedies of ASSIGNEE with respect to any Adverse Environmental Condition (and all Environmental Obligations arising out of any such Adverse Environmental Condition) attributable to ASSIGNOR's ownership or operation of the Property prior to the Effective Date that is known to ASSIGNEE prior to Closing, regardless of whether ASSIGNEE notifies ASSIGNOR of any such Adverse Environmental Condition. ASSIGNOR shall have no liability to ASSIGNEE for any such Adverse Environmental Condition (or its related Environmental Obligations) known to ASSIGNEE prior to Closing, if ASSIGNEE fails to notify ASSIGNOR as provided in Section 5.3.3. The indemnification obligations set forth in Section 8.4.2 are the sole and exclusive remedy of ASSIGNEE with respect to any Adverse Environmental Condition (and all Environmental Obligations arising out of any such Adverse Environmental Condition) attributable to ASSIGNOR's ownership or operation of the Property prior to the Effective date that becomes known to ASSIGNEE after Closing. 5.4 Government Approvals. 5.4.1 MMS and State Approvals. ASSIGNEE agrees promptly after Closing to take all actions required of it by the MMS or any other regulatory agencies to obtain all requisite regulatory approvals with respect to this transaction, and to use its best efforts to obtain the unconditional approval by the MMS or state of Louisiana, as applicable, of (i) the Assignment Documents requiring MMS or state approval in order for ASSIGNEE to be recognized by the MMS or the state of Louisiana as the owner of the Property, and (ii) in the event ASSIGNEE is elected successor operator under the operating agreements applicable to any of the Property, its qualification as the operator of record with respect to that portion of the Property for which it is seeking operatorship, together with any necessary rights of use and easements as to the pipeline(s) and platforms included in the Property. 5.4.2 MMS and State Bonding Requirements. ASSIGNEE agrees to promptly purchase and post any and all bonds, supplemental bonds or other securities which may be required of it pursuant to 30 CFRss.ss.250.7, 256.58, 256.59, and 256.61 in excess of any existing lease, pipeline or area-wide bond(s). Upon execution of this Agreement, ASSIGNEE shall confer with the MMS regarding the amounts and terms for the posting of any supplemental bonds or pledge of securities to be required pursuant to the provisions of 30 CFRss.ss.250.7 and 256.61. If the terms and amounts of any such supplemental bonds or arrangements for the pledge of securities required (or anticipated to be required) of ASSIGNEE by the MMS do not fully cover all of ASSIGNOR's Plugging and Abandonment Obligations and other obligations being assumed under this Agreement by ASSIGNEE with respect to the Property, then at Closing ASSIGNEE shall also deliver to ASSIGNOR an additional plugging and abandonment bond with terms and in a form approved by ASSIGNOR in its sole discretion. The amount of the additional bond to be delivered to ASSIGNOR at Closing under this Section 5.4 shall equal the difference between $18,500,000.00 and the total amount of the bonds, supplemental bonds and/or pledge of securities made and in place with the MMS by ASSIGNEE with respect to the Property on the Closing Date. The additional bond to be given by ASSIGNEE to ASSIGNOR under this Section 5.4 must be issued by an insurance company, surety, or other financial institution approved by ASSIGNOR in its sole discretion and shall be executed on the form attached hereto as Exhibit "I", or such other form mutually agreed to by the parties. ASSIGNEE shall maintain this additional bond in full force and effect, at ASSIGNEE's sole cost and expense, until the Property has been finally and permanently plugged, abandoned, and restored, all in accordance with governmental regulations. If preferential rights are exercised on any portion of the Property such that ASSIGNEE will not be acquiring that portion, the face amount of the bond shall be proportionately reduced by the percentage of the Purchase Price allocated to such portion of the Property based on the Allocated Values. The face amount of the bond may also be reduced by ASSIGNEE and its surety by the reasonable amounts spent by ASSIGNEE in partial compliance with its Plugging and Abandonment Obligations under this Agreement, once ASSIGNOR has determined (in its sole discretion) that such operations have been satisfactorily completed and has provided written notice of same to ASSIGNEE and its surety. ASSIGNEE's intention not to renew, or its failure to maintain, the additional bond in force shall entitle ASSIGNOR to full payment of the face amount of the bond on demand. 5.4.3 Title Pending Governmental Approvals. Until all of the governmental approvals provided for in this Section 5.4 have been obtained by ASSIGNEE, the following shall occur with respect to the affected Property: (i) ASSIGNOR shall continue to hold record title to the affected Leases and other affected Property as nominee for ASSIGNEE; (ii) ASSIGNEE shall assume responsibility for all of ASSIGNEE's Assumed Obligations with respect to the affected Leases and other affected Property as if ASSIGNEE were the record owner of such Leases and other Property as of the Effective Date, and shall indemnify ASSIGNOR with respect to all Claims arising in connection with the ownership or operation of such Leases and other Property, as provided in Section 8.3. (iii)ASSIGNOR shall act as ASSIGNEE's nominee but shall be authorized to act only upon and in accordance with ASSIGNEE's specific written instructions, and ASSIGNOR shall have no authority, responsibility or discretion to perform any tasks or functions with respect to the affected Leases and other affected Property other than those which are purely administrative or ministerial in nature, unless otherwise specifically requested and authorized by ASSIGNEE in writing; (iv) ASSIGNEE shall obtain and continue to maintain and provide at its cost the insurance coverages with minimum limits of liability as set forth in Section 6.2.5 of this Agreement; and (v) If ASSIGNOR continues to operate the affected Leases and other affected Property pending such approval, ASSIGNOR and ASSIGNEE will have the rights and obligations with respect to the operation of such Leases and other Property set forth in Article 10. 5.4.4 Denial of Required Government Approvals. If the MMS or state of Louisiana refuses to approve the lease assignments as contemplated by this Section 5.4, or fails to do so within eighteen (18) months after the Closing Date, ASSIGNOR may continue to hold record title to the affected Leases and other affected Property as ASSIGNEE's nominee or at ASSIGNOR's option it may cancel and terminate this Agreement and all its obligations hereunder as to the affected Leases and other affected Property by giving thirty (30) days written notice to ASSIGNEE. Upon such termination: (i) this Agreement shall be null and void and terminated as to the affected Leases and other affected Property, (ii) ASSIGNEE shall immediately reassign and return to ASSIGNOR the Assignment Documents and any and all other documents, materials and data previously delivered to ASSIGNEE with respect to the affected Leases and other affected Property, and (iii) ASSIGNOR shall return to ASSIGNEE the Allocated Value of the affected Leases and other affected Property previously paid to ASSIGNOR at Closing, without interest, less the proceeds of production net of all expenses, overhead, royalties, and costs of operations (including plugging and abandonment expenses but excluding mortgage interest and any burdens, liens, or encumbrances created by ASSIGNEE which must be released prior to this payment) attributable to the affected Leases or other affected Property from the Effective Date forward. In no event, however, shall ASSIGNOR ever be required to reimburse ASSIGNEE for any expenditures associated with workovers, recompletions, or the drilling, completion or plugging and abandonment of wells drilled or work performed by ASSIGNEE. ASSIGNOR will not be liable to ASSIGNEE if such MMS or state approvals are not obtained, except as expressly provided in this Section 5.4. 5.4.5 Hart-Scott-Rodino. This Agreement is subject in all respects to and conditioned upon compliance by the parties with Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "Hart-Scott-Rodino Act"), and rules and regulations promulgated pursuant thereto, to the extent that said act, rules and regulations are applicable to the transaction contemplated by this Agreement. ASSIGNEE and ASSIGNOR agree to make such filings with and provide such information to the Federal Trade Commission and the Department of Justice with respect to the transaction contemplated by this Agreement as are required in connection with the Hart-Scott-Rodino Act sufficiently in advance of the Closing Date to permit the lapse of the initial waiting periods prescribed in connection with the Hart-Scott-Rodino Act before the Closing Date. 5.5 Preferential Rights and Consents to Assign. 5.5.1 Notices to Holders. (i) If any of the Property is subject to third party preferential purchase rights, rights of first refusal, or similar rights (collectively, "Preferential Rights"), or third party consents to assign, lessor's approvals or similar rights (collectively, "Consents"), ASSIGNOR shall use reasonable efforts to (a) notify the holders of the Preferential Rights and Consents that it intends to transfer the Property to ASSIGNEE, (b) provide them with any information about the transfer of the Property to which they are entitled, and (c) in the case of Consents, ask the holders of the Consents to consent to the assignment of the affected Property to ASSIGNEE. (ii) ASSIGNOR shall promptly notify ASSIGNEE whether (a) any Preferential Rights are exercised, waived or deemed waived, (b) any Consents are denied, or (c) the requisite time periods have elapsed without any Preferential Rights being exercised or Consents being received. ASSIGNOR will not be liable to ASSIGNEE if any Preferential Rights are exercised, or any Consents are denied, except as expressly provided in this Section 5.5. 5.5.2 Remedies Before Closing. If ASSIGNOR is unable before Closing to obtain the required Consents (other than Consents ordinarily obtained after closing and Consents on hydrocarbon sales, purchase, gathering, transportation, treating, marketing, exchange, processing and fractionating agreements) and waivers of all Preferential Rights, then as the sole pre-Closing remedy for same: (i) ASSIGNOR and ASSIGNEE by agreement may proceed with Closing as to the Property affected by the unwaived Preferential Rights or unobtained Consents, subject to the further obligations of ASSIGNOR and ASSIGNEE set forth in Section 5.5.3 in the event that such Preferential Rights are validly exercised or such Consents are ultimately denied after Closing; or (ii) ASSIGNOR and ASSIGNEE will exclude the affected portion of the Property from the transaction under this Agreement, adjust the Purchase Price by the Allocated Value of the excluded Property, and proceed with Closing as to the rest of the Property. 5.5.3 Remedies After Closing. (i) Preferential Rights. After Closing, if (a) any holder of Preferential Rights alleges improper notice of sale or other defect in the notice, or (b) ASSIGNOR or ASSIGNEE discover, or any third party alleges, the existence of additional Preferential Rights, ASSIGNOR and ASSIGNEE will attempt to obtain waivers of those Preferential Rights. If ASSIGNOR and ASSIGNEE are unable to obtain waivers of such Preferential Rights, or the third party ultimately establishes and exercises its rights, and such exercise denies the Property to ASSIGNEE, then ASSIGNEE shall satisfy all such Preferential Rights obligations. ASSIGNEE shall be entitled to receive (and ASSIGNOR hereby assigns to ASSIGNEE all of ASSIGNOR's rights to) all proceeds received by ASSIGNOR in connection with the sale, due to an exercise of Preferential Rights, of any portion of the Property ASSIGNEE was to receive under this Agreement. ASSIGNEE's receipt of proceeds from the sale of the affected Property shall be ASSIGNEE's sole remedy if undiscovered or alleged Preferential Rights are established and exercised after Closing. (ii) Consents. After Closing, if ASSIGNOR or ASSIGNEE discover, or any third party alleges, the existence of additional Consents, ASSIGNOR and ASSIGNEE will attempt to obtain waivers of those Consents. If ASSIGNOR and ASSIGNEE are unable to obtain waivers of such Consents (other than Consents on hydrocarbon sales, purchase, gathering, transportation, treating, marketing, exchange, processing and fractionating agreements), and such unwaived Consents deny the affected Property to ASSIGNEE, then ASSIGNOR and ASSIGNEE will rescind the assignment of the affected Property under this Agreement, after which ASSIGNOR shall pay ASSIGNEE the Allocated Value of the affected Property, and ASSIGNEE shall immediately reassign the affected Property to the ASSIGNOR. Rescission of the assignment of the affected Property and receipt of the Allocated Value of the affected Property shall be ASSIGNEE's sole remedy if undiscovered or alleged Consents are established and denied after Closing. 5.6 Title Defects. 5.6.1 Definition of Title Defect. For the purposes of this Agreement, a "Title Defect" means any impairment, encumbrance, encroachment, irregularity, defect in, or dispute concerning ASSIGNOR's title to the Property, and that in the opinion of ASSIGNEE would: (i) Reduce, impair or prevent ASSIGNEE from receiving payment from the purchasers of production from the Property; (ii) Reduce ASSIGNEE's net revenue interest in all or a portion of the Property; (iii)Increase ASSIGNEE's working interest in all or a portion of the Property without a corresponding increase in net revenue interest; or (iv) Restrict or extinguish ASSIGNEE's right to use the Property as owner, lessee, licensee or permittee, as applicable. Neither the environmental condition of the Property, any Pre-Sale Hydrocarbon Imbalances, nor any failure to obtain Consents to the transfer of Related Contracts will be considered a Title Defect under this Section 5.6. 5.6.2 Notice of Title Defects. ASSIGNEE will review title to the Property prior to Closing and notify ASSIGNOR in writing of any Title Defect it discovers as soon as reasonably practicable after its discovery, but in no event less than ten (10) business days before the Closing Date. ASSIGNEE will be deemed to have conclusively waived any Title Defect about which it fails to notify ASSIGNOR in writing at least ten (10) business days before the Closing Date. 5.6.3 Request to Cure Title Defects. If ASSIGNEE notifies ASSIGNOR of a Title Defect as provided in Section 5.6.2, ASSIGNEE may request ASSIGNOR to cure the Title Defect, but ASSIGNOR will have no obligation to cure any Title Defect in the Property. If ASSIGNOR agrees to attempt to cure a Title Defect, ASSIGNOR must cure the Title Defect before Closing, unless the parties otherwise agree in writing. 5.6.4 Remedies for Uncured Title Defects. If ASSIGNEE notifies ASSIGNOR of any Title Defect as provided in Section 5.6.2, and ASSIGNOR refuses or is unable to cure the Title Defect before Closing, then ASSIGNEE and ASSIGNOR will have the following rights and remedies with respect to the uncured Title Defect(s) in the Property, unless the parties otherwise agree in writing. (i) ASSIGNEE may waive the uncured Title Defect and proceed with Closing. (ii) If an uncured, unwaived Title Defect reduces the value of the portion of the Property affected by the Title Defect by an amount less than two percent (2%) of the Allocated Value of that Property, ASSIGNOR and ASSIGNEE will be obligated to proceed with Closing as to the affected Property without adjustment to the Purchase Price. (iii)If an uncured, unwaived Title Defect reduces the value of the portion of the Property affected by the Title Defect by an amount equal to or more than two percent (2%) of the Allocated Value of that Property, either ASSIGNOR or ASSIGNEE may exclude the portion of the Property affected by the Title Defect from the transaction under this Agreement, in which case ASSIGNOR and ASSIGNEE will adjust the Purchase Price by the Allocated Value of the excluded Property, and proceed with Closing as to the rest of the Property. (iv) In addition to the rights and remedies set forth in subparts (i) through (iii) of this Section 5.6.4, ASSIGNOR and ASSIGNEE will have the termination rights set forth in Section 5.8. 5.6.5 Exclusive Remedy. The remedies set forth in this Section 5.6 are the exclusive remedies under this Agreement for all Title Defect matters, and ASSIGNOR shall have no other liability to ASSIGNEE with respect to Title Defects. 5.6.6 Interest Additions. In the event it is determined prior to Closing that ASSIGNOR owns a net revenue interest in any of the Property that is greater than the net revenue interest set forth in ASSIGNOR's offering memorandum or data room information for the Property, the parties shall use their best efforts to reach mutual agreement regarding an upward adjustment to the Purchase Price on account of the greater interest. If the parties are unable to agree on the amount of the upward adjustment, Closing shall nevertheless occur and the dispute shall be resolved under the dispute resolution provisions of Exhibit H. 5.7 Casualty Losses and Government Takings. 5.7.1 Notice of Casualty Losses. If, prior to the Closing Date, all or part of the Property is damaged or destroyed by fire, flood, storm, hurricane, named tropical disturbance, or other casualty ("Casualty Loss"), or is taken in condemnation or under the right of eminent domain, or if proceedings for such purposes shall be pending or threatened ("Government Taking"), ASSIGNOR must promptly notify ASSIGNEE in writing of the nature and extent of the Casualty Loss or Government Taking and ASSIGNOR's estimate of the cost required to repair or replace that portion of the Property affected by the Casualty Loss or value of the Property taken by the Government Taking. 5.7.2 Remedies for Casualty Losses and Government Takings. With respect to each Casualty Loss to or Government Taking of the Property, ASSIGNOR and ASSIGNEE will have the following rights and remedies. (i) If the agreed cost to repair or replace the portion of the Property affected by the Casualty Loss or the agreed value of the Property taken in any Government Taking is less than $ 50 million, the Purchase Price will be adjusted by the agreed cost of the Casualty Loss or the agreed value of the Property taken by the Government Taking, and the parties will proceed with Closing. (ii) If the agreed cost to repair or replace the portion of the Property affected by the Casualty Loss or the agreed value of the Property taken in any Government Taking equals or exceeds $ 50 million, ASSIGNOR and ASSIGNEE by agreement may adjust the Purchase Price by the agreed cost of the Casualty Loss or the agreed value of the Property taken in any Government Taking, and proceed with Closing. (iii)In addition to the remedies set forth in subparts (i) and (ii) of this Section 5.7.2, ASSIGNOR and ASSIGNEE will have the termination rights in connection with Casualty Losses and Government Takings set forth in Section 5.8. 5.7.3 Insurance Proceeds and Settlement Payments. If ASSIGNOR and ASSIGNEE adjust the Purchase Price of the Property due to a Casualty Loss or Government Taking, and proceed with Closing, ASSIGNOR will be entitled to retain (i) all insurance proceeds payable to ASSIGNOR with respect to any such Casualty Loss, (ii) all sums paid to ASSIGNOR by third parties by reason of any such Casualty Loss, and (iii) all compensation paid to ASSIGNOR with respect to any such Government Taking. 5.7.4 Change in Condition. ASSIGNEE will assume all risk and loss with respect to any change, between the Effective Date and the Closing Date, in the condition of the Property resulting from production of Hydrocarbons through normal depletion (including the watering-out, casing collapse, or sand infiltration of any well) and the depreciation of personal property through ordinary wear and tear. None of the events or conditions set forth in this Section 5.7.4 will be considered a Casualty Loss with respect to the Property, nor will they be cause for any other reduction in the Purchase Price, or give rise to any right to terminate this Agreement. 5.8 Termination Due to Impairments to the Property. 5.8.1 Right to Terminate. (i) If, on the Closing Date, the Allocated Value of all Property to be excluded from the transaction contemplated by this Agreement due to unwaived, uncured Title Defects or Adverse Environmental Conditions on the Property exceeds twenty-five percent (25%) of the total Allocated Value of all of the Property, either ASSIGNOR or ASSIGNEE may terminate this Agreement, and neither ASSIGNOR nor ASSIGNEE will have any further obligation to conclude the transfer of the Property under this Agreement. (ii) If, on or before the Closing Date, a Casualty Loss or Government Taking has occurred with respect to the Property, and (a) ASSIGNOR and ASSIGNEE have been unable to agree on the cost of the Casualty Loss or the value of the Property taken in any Government Taking, or (b) the agreed cost to repair or replace the portion of the Property affected by the Casualty Loss or the agreed value of the Property taken in any Government Taking equals or exceeds $ 50 million, then either ASSIGNOR or ASSIGNEE may terminate this Agreement, and neither ASSIGNOR nor ASSIGNEE will have any further obligation to conclude the transfer of the Property under this Agreement. 5.8.2 Notice of Termination. Any party exercising a right of termination under this Section 5.8 must notify the other party in writing no later than three (3) business days before the Closing Date of its election to terminate this Agreement. ARTICLE 6. CLOSING AND POST-CLOSING OBLIGATIONS ------------------------------------ 6.1 Closing Date. The actions and events described in Section 6.3 are the "Closing" of this transaction, which shall be held beginning at 9:00 a.m. local time at ASSIGNOR's offices located at 600 North Dairy Ashford, Houston, Texas 77079 on December 31, 2001, or on such earlier or later date or at such other place as the parties agree in writing ("Closing Date"). Time is of the essence in the performance of this Agreement. All events of Closing shall each be deemed to have occurred simultaneously with the other, regardless of when actually occurring, and each shall be a condition precedent to the other. If the Closing occurs, all conditions of Closing shall be deemed to have been satisfied or waived (but ASSIGNOR's and ASSIGNEE's warranties and representations shall not be waived and shall survive the Closing, to the extent provided in Section 11.5). 6.2 Conditions to Closing. ASSIGNOR and ASSIGNEE will not be obligated to close the transaction described in this Agreement, and will have the right to terminate this Agreement, unless each of the conditions to its performance set forth in this Section 6.2 is satisfied as of the Closing Date, or it waives in whole or part any such condition to its performance that is unsatisfied as of the Closing Date. If a party elects to terminate this Agreement because a condition to its performance is not satisfied, the terminating party must give the other party written notice of termination on or before the Closing Date, after which neither ASSIGNOR nor ASSIGNEE will have any further obligation to conclude the transfer of the Property under this Agreement. The inclusion in this Agreement of conditions to ASSIGNOR's and ASSIGNEE's obligations at Closing shall not, in and of itself, constitute a covenant of either ASSIGNOR or ASSIGNEE to satisfy the conditions to the other party's obligations at Closing. 6.2.1 Representations and Warranties. (i) ASSIGNOR will not be obligated to close if, as of the Closing Date, any matter represented or warranted in this Agreement by the ASSIGNEE is untrue, inaccurate or is misleading in any material respect and has a material adverse effect on the value, use or operation of the Property. (ii) ASSIGNEE will not be obligated to close if, as of the Closing Date, any matter represented or warranted in this Agreement by the ASSIGNOR is untrue, inaccurate or is misleading in any material respect and has a material adverse effect on the value, use or operation of the Property. 6.2.2 Performance of Obligations. (i) ASSIGNOR will not be obligated to close if, as of the Closing Date, ASSIGNEE has not performed all material obligations under this Agreement that ASSIGNEE is required to perform on or before Closing. (ii) ASSIGNEE will not be obligated to close if, as of the Closing Date, ASSIGNOR has not performed all material obligations under this Agreement that ASSIGNOR is required to perform on or before Closing. 6.2.3 Legal Proceedings. Neither ASSIGNOR nor ASSIGNEE will be obligated to close if, as of the Closing Date, any suit or other proceeding is pending or threatened before any court or governmental agency seeking to restrain, prohibit, or declare illegal, or seeking substantial damages in connection with, the transaction that is the subject of this Agreement, and/or there is reasonable basis for any such suit or other proceeding. 6.2.4 FTC Consent. Neither ASSIGNOR nor ASSIGNEE will be obligated to close if, as of the Closing Date, any necessary consent of the Federal Trade Commission and any other state or federal governmental authority or agency relating to the consummation of the transaction contemplated by this Agreement (except for approvals covered by Section 5.4) has not been obtained or waived, or applicable waiting periods prescribed by the Hart-Scott-Rodino Act have not elapsed or terminated. 6.2.5 ASSIGNEE's Insurance. ASSIGNOR will not be obligated to close if ASSIGNEE, as of the Closing Date, does not have insurance providing the following minimum insurance coverages with limits of liability of not less than those set out below: (i) Insurance which shall comply with all applicable Workers' Compensation and Occupational Disease Laws and which shall cover all of the ASSIGNEE's employees performing any work or activities as to the Property. ASSIGNEE shall carry insurance for all work performed offshore, including insurance to cover Claims under the United States Longshoremen's and Harbor Workers' Act extended to include the Outer Continental Shelf; (ii) Comprehensive/Commercial General Liability Insurance (including contractual liability coverage) with a combined bodily injury and property damage limit of not less than $5,000,000 for each occurrence, together with Pollution Liability Insurance with a coverage of not less than $5,000,000 for each occurrence. Such insurance shall include coverage for all liability assumed by ASSIGNEE under the terms of this Agreement with limits not less than those set out above. As to all comprehensive/commercial general public and pollution liability insurance policies, ASSIGNOR shall be named as an additional insured to the extent of ASSIGNEE's liabilities and obligations hereunder. All such insurance of ASSIGNEE hereunder shall be written on policy forms and by insurance companies approved by ASSIGNOR. ASSIGNEE shall furnish ASSIGNOR with certificates of insurance on forms approved by ASSIGNOR, listing all such insurance policies. All such certificates must be signed by authorized representatives of the insurance companies and must provide for not less than ten (10) days prior written notice to ASSIGNOR in the event of cancellation or material change affecting ASSIGNOR's interest. ASSIGNEE shall ensure that it and its contractors' insurers waive all rights of recovery or subrogation against ASSIGNOR, its parent, subsidiaries, affiliates, agents, directors, officers, employees, servants, co-lessees or co-venturers. Neither failure to comply, nor full compliance with the insurance provisions of this Agreement, shall limit or relieve ASSIGNEE from its indemnity obligations in accordance with this Agreement. 6.2.6 ASSIGNOR's Corporate Approvals. ASSIGNOR will not be obligated to close if, as of the close of business October 10, 2001, final corporate approval by the appropriate levels of its and ASSIGNEE's management and board of directors has not been obtained. Such approval is not assured, and if any requisite level of such management and corporate approval is not forthcoming for any reason whatsoever, ASSIGNOR shall not be obligated to seek other such approvals. ASSIGNOR shall notify ASSIGNEE in writing by close of business October 12, 2001, whether such approval has been obtained. 6.2.7 ASSIGNEE's Corporate Approvals. ASSIGNEE will not be obligated to close if, as of the close of business October 10, 2001, final corporate approval by the appropriate levels of its and ASSIGNOR's management and board of directors has not been obtained. Such approval is not assured, and if any requisite level of such management and corporate approval is not forthcoming for any reason whatsoever, ASSIGNEE shall not be obligated to seek other such approvals. ASSIGNEE shall notify ASSIGNOR in writing by close of business October 12, 2001, whether such approval has been obtained. 6.2.8 One Closing. ASSIGNOR will not be obligated to close if ASSIGNEE has made an election under this Agreement or some other event has occurred that will prevent ASSIGNOR from Closing on, or will cause ASSIGNOR to be unable to close and convey, all of the Property at one Closing and to receive at such Closing the entire Purchase Price, adjusted as provided in Section 2.2, and to be paid pursuant to Section 6.3. 6.2.9 Concurrent Closing. Neither ASSIGNOR nor ASSIGNEE will be obligated to close if the closing of that certain Share and Pipeline Purchase Agreement between them of even date herewith is not closed concurrently with the Closing of this Agreement. 6.2.10 ASSIGNEE's Financial Information and Condition. ASSIGNOR will not be obligated to close if (i) ASSIGNEE has not provided ASSIGNOR, at least ten (10) business days in advance of Closing, copies of ASSIGNEE's audited financial statements and any other financial information reasonably requested by ASSIGNOR, (ii) such information is not materially true and correct in all respects, or (iii) any material adverse change in the financial condition of ASSIGNEE has occurred between the Effective Date and the Closing Date. 6.3 Closing. At Closing, the following events shall occur, and ASSIGNOR and ASSIGNEE shall execute, acknowledge (if necessary), and exchange, as applicable, the following items: (i) Both parties at Closing shall execute a Closing Statement evidencing the amounts to be wire transferred into the accounts of each receiving party at Closing. (ii) ASSIGNEE shall deliver to ASSIGNOR the Purchase Price, as adjusted by the amount shown on the Preliminary Settlement Statement, by wire transfer in immediately available funds to the account of ASSIGNOR designated in writing by ASSIGNOR prior to Closing. (iii)If ASSIGNOR elects to return the Performance Deposit as provided in Section 2.1.2, ASSIGNOR shall deliver to ASSIGNEE the Performance Deposit without interest, by wire transfer in immediately available funds to the account of ASSIGNEE designated in writing by ASSIGNEE prior to Closing. (iv) ASSIGNOR shall execute and deliver to ASSIGNEE the assignment documents (in sufficient counterparts for recording) for the assignment and conveyance of the Property to be transferred under this Agreement in the forms set forth in Exhibit D, Schedules 1, 2, 3, and 4 (the "Assignment Documents"); (v) The parties shall execute and deliver the Assignment of Contracts in the form of Exhibit E for the Related Contracts, together with any other ratification and joinder instruments required to transfer the rights, obligations and interests in applicable Related Contracts and other Property; (vi) ASSIGNOR shall execute the Nonforeign Affidavit in the form of Exhibit F; (vii)ASSIGNOR shall deliver to ASSIGNEE a photostatic copy of the letters from ASSIGNOR to its co-owners in the portions of the Property it operates resigning as operator for those portions of the Property. (viii) If ASSIGNEE is attempting to succeed ASSIGNOR as operator of any of the Property, ASSIGNEE shall prepare and the parties shall execute appropriate change of operator notices and any third party ballots required under applicable operating agreements. (ix) ASSIGNOR and ASSIGNEE shall execute, acknowledge (if necessary) and exchange, as applicable, any applications necessary to transfer to ASSIGNEE all transferable governmental or regulatory permits to which the Property is subject, and which ASSIGNOR has agreed to transfer under this Agreement. (x) ASSIGNEE shall furnish ASSIGNOR with evidence acceptable to ASSIGNOR that ASSIGNEE is qualified to hold title to the Leases and other Property with the MMS and state of Louisiana, as applicable, and to operate (should ASSIGNEE become the operator of the Property or a portion thereof) the platforms, wells, pipelines and facilities associated therewith, including copies of all ASSIGNEE's ownership, operational, and plugging bonds or other supplemental security arrangements for the Property, as provided in Section 5.4. (xi) ASSIGNEE shall furnish ASSIGNOR with any additional bond as required under Section 5.4. (xii)ASSIGNEE shall furnish ASSIGNOR with Certificate(s) of Insurance confirming the existence of the ASSIGNEE's insurance coverages pursuant to Section 6.2.5. (xiii) ASSIGNEE shall furnish ASSIGNOR with a certified resolution or secretary's certificate of ASSIGNEE evidencing the authority of ASSIGNEE to enter into this Agreement and close the transaction contemplated hereby in a form and having content satisfactory to ASSIGNOR. (xiv)ASSIGNOR shall furnish ASSIGNEE with letters-in-lieu of transfer orders directing all purchasers of production from the Property to pay ASSIGNEE the proceeds of production produced from the Property from and after the Effective Date. (xv) ASSIGNEE, ASSIGNOR, and ASSIGNEE's surety will execute and deliver the additional bond provided in Section 5.4.2. (xvi)ASSIGNEE shall execute and deliver the release and litigation dismissal described in Section 8.8, if applicable. (xvii)The parties shall execute and deliver other appropriate assignments, bills of sale, deeds or instruments necessary to transfer the Property to ASSIGNEE or to effect and support this transaction contemplated in this Agreement, including any conveyances on official forms and related documentation necessary to transfer the Property to ASSIGNEE in accordance with requirements of governmental regulations. 6.4 Post-Closing Obligations. ASSIGNOR and ASSIGNEE have the following post-closing obligations: 6.4.1 Property Records. Within sixty (60) days after Closing, ASSIGNOR shall deliver to ASSIGNEE the originals or legible copies of the Property Records, at a location designated by ASSIGNEE. Any transportation, postage or delivery costs from ASSIGNOR's offices shall be at ASSIGNEE's sole cost, risk and expense. If ASSIGNOR retains any original Property Records, ASSIGNEE shall have the right to access and review those original Property Records during normal business hours. ASSIGNEE agrees to maintain the Property Records for seven (7) years after Closing. ASSIGNEE shall provide ASSIGNOR and its representatives reasonable access to and the right to copy such Property Records for the purposes of (i) preparing and delivering any accounting provided under this Agreement and adjusting, prorating and settling the charges and credits provided in this Agreement; (ii) complying with any law, rule or regulation affecting ASSIGNOR's interest in the Property prior to the Closing Date; (iii) preparing any audit of the books and records of any third party relating to ASSIGNOR's interest in the Property prior to the Closing Date, or responding to any audit prepared by such third parties; (iv) preparing tax returns; (v) responding to or disputing any tax audit; or (vi) asserting, defending or otherwise dealing with any claim or dispute under this Agreement. ASSIGNEE shall notify ASSIGNOR in writing before destroying any Property Records. ASSIGNOR agrees to use all reasonable efforts, but without any obligation to incur any cost or expense in connection therewith, to cooperate with ASSIGNEE's efforts to obtain access to files, records and data relating to the Property not provided by ASSIGNOR which are in the possession of any third party operator of any of the Property. 6.4.2 Recording and Filing. ASSIGNEE, within thirty (30) days after Closing, shall (i) record all Assignment Documents and all other instruments that must be recorded to effectuate the transfer of the Property; and (ii) file for approval with the applicable government agencies all Assignment Documents and other state and federal transfer documents required to effectuate the transfer of the Property. ASSIGNEE shall provide ASSIGNOR a recorded copy of each Assignment Document and other recorded instruments, and approved copies of the Assignment Documents and other state and federal transfer documents as soon as they are available. 6.4.3 Change of Operator Requirements. If ASSIGNEE is attempting to succeed ASSIGNOR as operator of any portion of the Property, ASSIGNEE shall promptly file all appropriate forms, declarations or bonds with federal and state agencies relative to its assumption of operations. 6.4.4 Further Assurances. ASSIGNEE and ASSIGNOR agree to execute and deliver from time to time such further instruments and do such other acts as may be reasonably requested and necessary to effectuate the purposes of this Agreement. ARTICLE 7. ASSUMED AND RETAINED RIGHTS AND OBLIGATIONS ------------------------------------------- 7.1 ASSIGNEE's Rights After Closing. Upon and after Closing, ASSIGNEE will receive and assume all of ASSIGNOR's right, title and interest in the Property, with effect as of the Effective Date. 7.2 ASSIGNEE's Obligations After Closing. 7.2.1 Description of Obligations. Upon and after Closing, ASSIGNEE will assume, pay and perform all the obligations, liabilities and duties with respect to the ownership and (if applicable) operation of the Property that are attributable to periods on and after the Effective Date (the "ASSIGNEE's Assumed Obligations"). The ASSIGNEE's Assumed Obligations include: (i) Responsibility for payment of all operating expenses and capital expenditures related to the Property and attributable to the period on and after the Effective Date; (ii) Responsibility for performance of all express and implied obligations and covenants under the terms of the Leases, other instruments of record in the chain of title, the Related Contracts and all other orders and contracts to which the Property or the operation thereof is subject arising on and after the Effective Date; (iii)Responsibility for payment of all royalties, overriding royalties, production payments, net profits obligations, rentals, shut-in payments and other burdens or encumbrances to which the Property is subject that are attributable to periods on and after the Effective Date; (iv) Responsibility for proper accounting for and disbursement of production proceeds from the Property attributable to periods on and after the Effective Date, including funds in any suspense accounts received from ASSIGNOR; (v) Responsibility for compliance with all applicable laws, ordinances, rules and regulations pertaining to the Property, and the procurement and maintenance of all permits required by public authorities in connection with the Property on and after the Effective Date; (vi) The Plugging and Abandonment Obligations, the Environmental Obligations, and all other obligations assumed by ASSIGNEE under this Agreement; and (vii)Responsibility for all obligations related to the Post-Sale Hydrocarbon Imbalances. 7.2.2 Non-Operator's Obligations. With respect to (i) any part of the Property for which ASSIGNEE is not duly elected operator, or (ii) any non-operating interests in the Property, ASSIGNEE shall assume full responsibility and liability for ASSIGNEE's Assumed Obligations with respect to the non-operating interests being conveyed and assigned under this Agreement. 7.3 ASSIGNOR's Obligations After Closing. 7.3.1 Description of Obligations. After Closing, ASSIGNOR will retain responsibility for all liabilities, obligations and duties with respect to the ownership and (if applicable) operation of the Property that are attributable to periods before the Effective Date, except as otherwise specifically provided in this Agreement (the "ASSIGNOR's Retained Obligations"). The ASSIGNOR's Retained Obligations include: (i) Responsibility for the payment of all operating expenses and capital expenditures related to the Property and attributable to the period prior to the Effective Date; (ii) Responsibility for performance of all express and implied obligations and covenants under the terms of the Leases, other instruments in the chain of title, the Related Contracts and all other orders and contracts to which the Property is subject arising before the Effective Date; (iii) Responsibility for payment of all royalties, overriding royalties, production payments, net profits obligations, rentals, shut-in payments and other burdens or encumbrances to which the Property is subject that are attributable to periods before the Effective Date; (iv) Responsibility for proper accounting for and disbursement of production proceeds from the Property attributable to periods before the Effective Date; (v) Responsibility for the exclusions from the Plugging and Abandonment Obligations described in Section 7.4.2, and the exclusions from the Environmental Obligations described in Section 7.5.2; and (vi) Responsibility for all obligations related to the Pre-Sale Hydrocarbon Imbalances. 7.3.2 Non-Operator's Obligations. With respect to (i) any periods of time before the Effective Date during which ASSIGNOR was not operator of the Property, or (ii) any non-operating interests in the Property, ASSIGNOR retains full responsibility and liability for ASSIGNOR's Retained Obligations with respect to the non-operating interests being conveyed and assigned under this Agreement. 7.4 Plugging and Abandonment Obligations. 7.4.1 ASSIGNEE's Obligations. Upon and after Closing, ASSIGNEE assumes full responsibility and liability for the following plugging and abandonment obligations related to the Property (the "Plugging and Abandonment Obligations"), regardless of whether they are attributable to the ownership or operation of the Property before or after the Effective Date: (i) The necessary and proper plugging, replugging and abandonment of all wells on the Property, whether plugged and abandoned before or after the Effective Date; (ii) The necessary and proper removal, abandonment, and disposal of all platforms, structures, pipelines, equipment, abandoned property and junk located on or comprising part of the Property, including junk on the sea floor at the Leases; (iii) The necessary and proper capping and burying of all flow lines associated with the Wells and located on or comprising part of the Property; (iv) The necessary and proper restoration of the Property, both surface, sea floor, and subsurface, as may be required by applicable laws, regulation or contract; (v) Any necessary clean-up or disposal of Property contaminated by naturally occurring radioactive material ("NORM"), as may be required by applicable laws, regulations or contract; (vi) All obligations arising from contractual requirements and demands made by courts, authorized regulatory bodies or parties claiming a vested interest in the Property; and (vii) Obtaining and maintaining all bonds, or supplemental or additional bonds, that may be required contractually or by governmental authorities. 7.4.2 Exclusions from ASSIGNEE's Obligations. ASSIGNEE's obligations under this Section 7.4 do not include any civil or criminal fines or penalties that may be levied against ASSIGNOR or ASSIGNEE by any court or regulatory authority for non-compliance with applicable laws, regulations or orders in connection with the ownership or operation of the Property before the Effective Date. 7.4.3 Standard of Operations. ASSIGNEE shall conduct all plugging, replugging, abandonment, removal, disposal and restoration operations in a good and workmanlike manner and in compliance with all applicable laws and regulations. 7.4.4 Non-Operator's Obligations. With respect to any non-operating interests in the Property, ASSIGNEE shall assume full responsibility and liability, from and after the Effective Date, for the Plugging and Abandonment Obligations with respect to the non-operating interests being conveyed and assigned under this Agreement. 7.4.5 ASSIGNOR's Remedies. ASSIGNEE's liability and obligations under this Section 7.4 are included in the liabilities and obligations to be secured by the bonds, supplemental or additional bonds and/or pledge of securities, as may be established pursuant to Section 5.4. If ASSIGNEE defaults in the performance of its obligations pursuant to this Section 7.4, ASSIGNOR, at its option, and after reasonable notice, may complete, or have completed, the plugging, replugging, abandonment, removal, disposal, capping, burying, and restoration operations at ASSIGNEE's expense. Exercise of ASSIGNOR's rights hereunder shall in no way limit ASSIGNOR's rights to seek recovery for any uncompensated damages resulting from such default or to exercise any other legal rights and remedies under this Agreement. 7.5 Environmental Obligations. 7.5.1 ASSIGNEE's Obligations. Except as provided in Section 7.5.2, upon and after Closing, ASSIGNEE assumes full responsibility and liability for the following occurrences, events and activities on or related to the Property (the "Environmental Obligations"), regardless of whether arising from the ownership or operation of the Property before or after the Effective Date, and regardless of whether resulting from any acts or omissions of ASSIGNOR or the condition of the Property when acquired: (i) Environmental pollution or contamination, including pollution or contamination of the soil, sea, groundwater or air by oil, gas, condensate, distillate, other hydrocarbons, brine, NORM or otherwise; (ii) Underground injection activities and waste disposal onsite; (iii)Clean-up responses, and the cost of remediation, control, assessment or compliance with respect to surface, sea floor, and subsurface pollution caused by spills, pits, ponds or lagoons; (iv) Failure to comply with applicable land use, surface disturbance, licensing or notification requirements; (v) Disposal on the Property of any hazardous substances, wastes, materials and products generated by or used in connection with the ownership or operation of the Property before or after the Effective Date; and (vi) Non-compliance with environmental or land use rules, regulations, demands or orders of appropriate state or federal regulatory agencies. 7.5.2 Exclusions from ASSIGNEE's Obligations. ASSIGNEE's Environmental Obligations do not include: (i) Any civil or criminal fines or penalties that may be levied against ASSIGNOR by any court or regulatory authority for any such violation of any laws, rules or regulations in connection with the ownership or operation of the Property before the Effective Date, all of which shall remain the responsibility of ASSIGNOR; and (ii) Disposal offsite from the Property before the Effective Date of any hazardous substances, wastes, NORM, materials and products generated by or used in connection with the ownership or operation of the Property before the Effective Date. 7.5.3 Non-Operator's Obligations. With respect to any non-operating interests in the Property being transferred to ASSIGNEE under this Agreement, ASSIGNEE agrees to assume full responsibility and liability, from and after the Effective Date, for the Environmental Obligations with respect to the non-operating interests being conveyed and assigned under this Agreement. ARTICLE 8. INDEMNITIES ----------- 8.1 Definition of Claims. As used in this Agreement, the term "Claims" means any and all losses, liabilities, damages, punitive damages, obligations, expenses, fines, penalties, costs, claims, causes of action and judgments for: (i) breaches of contract; (ii) loss or damage to property, injury to or death of persons, and other tortious injury; and (iii) violations of applicable laws, rules, regulations, orders or any other legal right or duty actionable at law or equity. The term "Claims" also includes reasonable attorneys fees, court costs, and other reasonable costs of litigation resulting from the defense of any claim or cause of action within the scope of the indemnities in this Agreement. 8.2 Application of Indemnities. 8.2.1 Covered Claims and Parties. All indemnities set forth in this Agreement extend to the officers, directors, employees and affiliates of the party indemnified. Unless this Agreement expressly provides to the contrary, the indemnities set forth in this Agreement apply regardless of whether the indemnified party (or its employees, agents, contractors, successors or assigns) causes, in whole or part, an indemnified Claim, including indemnified Claims arising out of or resulting, in whole or part, from the condition of the Property or the indemnified party's (or its employees', agents', contractors', successors' or assigns') sole or concurrent negligence, strict liability or fault. However, the indemnities set forth in this Agreement do not extend to any part of an indemnified Claim that (i) is the result of the gross negligence, willful misconduct or fraud of the indemnified party, (ii) is the result of the imposition of punitive damages on the indemnified party arising from the acts of the indemnified party, or (iii) is the result of the imposition of civil or criminal fines or penalties by any court or regulatory authority on the indemnified party due the indemnified party's failure to comply with applicable laws, regulations or orders. 8.2.2 Other Limitations. The indemnities of the indemnifying party in this Agreement do not cover or include any amounts that the indemnified party may legally recoup from other third party owners under applicable joint operating agreements or other agreements, or for which the indemnified party is reimbursed by any third party. The indemnities in this Agreement do not relieve the parties to this Agreement from any obligations to third parties. The indemnities of the parties in this Agreement do not relieve the indemnified party from, or extend to cover, any obligations of the indemnified party under the terms of any operating agreement or other cost-sharing arrangement which is applicable to any Claim. There will be no upward or downward adjustment in the Purchase Price as a result of any matter for which ASSIGNEE or ASSIGNOR is indemnified under this Agreement. 8.3 ASSIGNEE's Indemnity. ASSIGNEE shall indemnify, defend and hold ASSIGNOR harmless from and against any and all Claims caused by, resulting from or incidental to: 8.3.1 ASSIGNEE's Assumed Obligations, including the Plugging and Abandonment Obligations, the Environmental Obligations (except as provided in Section 8.4), and the Post-Sale Hydrocarbon Imbalances; 8.3.2 If applicable, ASSIGNOR's operation of the Property and any assistance in the transition of operations under Article 10, except to the extent caused by ASSIGNOR's gross negligence or willful misconduct; 8.3.3 Any obligations for brokerage or finder's fee or commission incurred by ASSIGNEE in connection with its purchase of the Property; 8.3.4 Any violation by ASSIGNEE of state or federal securities laws, or ASSIGNEE's dealings (including any dealings in breach of ASSIGNEE's warranties and representations in Section 3.3.3) with its partners, investors, financial institutions, assignees and other third parties in connection with the transaction under this Agreement, or any subsequent sale or other disposition of the Property (or portion thereof) by ASSIGNEE, its affiliates or assignees; 8.3.5 ASSIGNEE's ownership or operation of any portion of the Property reconveyed or reassigned to ASSIGNOR pursuant to Sections 5.4.4 or 5.5.3(ii) due to failure to obtain requisite Consents or government approvals, except to the extent any such Claim is the direct result of ASSIGNOR's ownership or operation of the Property before the Effective Date; and 8.3.6 ASSIGNEE's inspection of the Property under Section 5.2 and any other provisions of this Agreement, to the extent provided in Section 5.2. 8.4 ASSIGNOR's Indemnity. Subject to Section 8.6, ASSIGNOR shall indemnify, defend and hold ASSIGNEE harmless from and against any and all Claims caused by, resulting from or incidental to: 8.4.1 ASSIGNOR's Retained Obligations, including the exclusions from the Plugging and Abandonment Obligations, the exclusions from the Environmental Obligations assumed by ASSIGNEE in the ASSIGNEE's Assumed Obligations, and the Pre-Sale Hydrocarbon Imbalances; 8.4.2 Claims against ASSIGNEE by third parties (and third parties only, including governmental agencies) of which ASSIGNEE notifies ASSIGNOR in writing within one (1) year after Closing, to the extent those Claims result from Environmental Obligations that arise from ASSIGNOR's ownership or operation of the Property prior to the Effective Date, but ASSIGNOR shall have no obligation to ASSIGNEE under this Section 8.4 for any such Claim of which ASSIGNOR is not notified in writing by ASSIGNEE within one (1) year after Closing. 8.4.3 If applicable, ASSIGNOR's operation of the Property and any assistance in the transition of operations under Article 10, to the extent caused by ASSIGNOR's gross negligence or willful misconduct; and 8.4.4 ASSIGNOR's access to the Property after Closing for the purposes described in Sections 10.1 and 11.4, except to the extent caused by ASSIGNEE's gross negligence or willful misconduct. 8.5 Notices and Defense of Indemnified Claims. Each party shall immediately notify the other party of any Claim of which it becomes aware and for which it is entitled to indemnification from the other party under this Agreement. The indemnifying party shall be obligated to defend at the indemnifying party's sole expense any litigation or other administrative or adversarial proceeding against the indemnified party relating to any Claim for which the indemnifying party has agreed to indemnify and hold the indemnified party harmless under this Agreement. However, the indemnified party shall have the right to participate with the indemnifying party in the defense of any such Claim at its own expense. 8.6 ASSIGNOR's Indemnity Limit. Notwithstanding anything herein to the contrary, (i) in no event shall ASSIGNOR be required to indemnify ASSIGNEE for any Claim or pay any other amount in connection with or with respect to the transactions contemplated in this Agreement in any amount exceeding in the aggregate twenty-five percent (25 %) of the Purchase Price as adjusted pursuant to Section 2.2 and (ii) in no event shall ASSIGNOR be required to indemnify ASSIGNEE for any Claim covered by ASSIGNOR's indemnity under Section 8.4, if ASSIGNOR does not receive written notice of the Claim as provided in Section 8.5 within one (1) year after the Closing Date. 8.7 NORM. ASSIGNEE ACKNOWLEDGES THAT IT HAS BEEN INFORMED THAT OIL AND GAS PRODUCING FORMATIONS CAN CONTAIN NATURALLY OCCURRING RADIOACTIVE MATERIAL. SCALE FORMATION OR SLUDGE DEPOSITS CAN CONCENTRATE LOW LEVELS OF NORM ON EQUIPMENT, MATERIALS AND OTHER PROPERTY. SOME OR ALL OF THE EQUIPMENT, MATERIALS AND OTHER PROPERTY SUBJECT TO THIS AGREEMENT MAY HAVE LEVELS OF NORM ABOVE BACKGROUND LEVELS. A HEALTH HAZARD MAY EXIST IN CONNECTION WITH THIS EQUIPMENT, MATERIALS AND OTHER PROPERTY BY REASON THEREOF. THEREFORE, ASSIGNEE MAY NEED TO FOLLOW SAFETY PROCEDURES WHEN HANDLING THIS EQUIPMENT, MATERIALS AND OTHER PROPERTY. 8.8 Pending Litigation and Claims. Notwithstanding anything in this Agreement to the contrary, ASSIGNEE shall indemnify, defend and hold ASSIGNOR harmless from and against any Claims resulting from the litigation and claims listed on Exhibit C under the section entitled "ASSIGNEE's Responsibility," except as may otherwise be expressly provided in that Exhibit. ASSIGNOR shall indemnify, defend and hold ASSIGNEE harmless from and against any Claims resulting from the litigation and claims listed on Exhibit C under the section entitled "ASSIGNOR's Responsibility," except as may otherwise be expressly provided in that Exhibit. Furthermore, if ASSIGNEE is a party in any of the litigation listed on Exhibit C against ASSIGNOR, ASSIGNEE shall release ASSIGNOR from its Claims and dismiss such litigation with prejudice. These matters shall not constitute an Adverse Environmental Condition or a Title Defect. 8.9 Waiver of Consequential and Punitive Damages; Data Room Matters. NEITHER ASSIGNEE NOR ASSIGNOR SHALL BE ENTITLED TO RECOVER FROM THE OTHER, RESPECTIVELY, AND EACH PARTY RELEASES THE OTHER PARTY FROM, ANY LOSSES, COSTS, EXPENSES, OR DAMAGES ARISING UNDER THIS AGREEMENT OR IN CONNECTION WITH OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT ANY AMOUNT IN EXCESS OF THE ACTUAL COMPENSATORY DAMAGES SUFFERED BY SUCH PARTY. ASSIGNEE AND ASSIGNOR BOTH WAIVE, AND RELEASE THE OTHER FROM, ANY RIGHT TO RECOVER PUNITIVE, SPECIAL, EXEMPLARY AND CONSEQUENTIAL DAMAGES ARISING IN CONNECTION WITH OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT; PROVIDED, HOWEVER, ANY SUCH DAMAGES RECOVERED BY A THIRD PARTY (OTHER THAN SUBSIDIARIES, AFFILIATES OR PARENTS OF A PARTY) FOR WHICH A PARTY OWES THE OTHER PARTY AN INDEMNITY UNDER THIS ARTICLE 8 SHALL NOT BE WAIVED. ASSIGNEE hereby fully and unconditionally releases ASSIGNOR and their affiliates and subsidiaries and their officer, directors and employees, from any and all Claims, causes of action or damages, if any, arising in favor of ASSIGNEE from ASSIGNOR's data room process and proposal procedures in connection with its sale of the Property. ARTICLE 9. TAXES AND EXPENSES ------------------ 9.1 Recording Expenses. ASSIGNEE shall pay all costs of recording and filing the Assignment Documents for the Property, all other state and federal transfer documents, and any other instruments that must be filed to effectuate the transfer of the Property. 9.2 Ad Valorem, Real Property and Personal Property Taxes. All Ad Valorem Taxes, Real Property Taxes, Personal Property Taxes, and similar obligations ("Property Taxes") on the Property are ASSIGNOR's obligation for periods before the Effective Date and ASSIGNEE's obligation for periods after the Effective Date. If Property Taxes for the current tax year have not been assessed and paid as of the Closing Date, the ASSIGNEE shall file all required reports and returns incident to the Property Taxes and pay the Property Taxes for the current tax year and subsequent periods. The ASSIGNOR will reimburse the ASSIGNEE promptly for the ASSIGNOR's proportionate share of these taxes, prorated as of the Effective Date, upon receipt of evidence of the ASSIGNEE's payment of the taxes. If Property Taxes for the current tax year have been assessed and paid as of the Closing Date, the ASSIGNEE will reimburse the ASSIGNOR for its proportionate share of these taxes, prorated as of the Effective Date, as a closing adjustment to the Purchase Price, as provided in Section 2.2. 9.3 Severance Taxes. ASSIGNOR shall bear and pay all severance or other taxes measured by Hydrocarbon production from the Property, or the receipt of proceeds therefrom, to the extent attributable to production from the Property before the Effective Date. ASSIGNEE shall bear and pay all such taxes on production from the Property on and after the Effective Date. ASSIGNOR shall withhold and pay on behalf of ASSIGNEE all such taxes on production from the Property between the Effective Date and the Closing Date, if the Closing Date follows the Effective Date, and the amount of any such payment shall be reimbursed to ASSIGNOR as a closing adjustment to the Purchase Price pursuant to Section 2.2. If either party pays taxes owed by the other, upon receipt of evidence of payment the nonpaying party will reimburse the paying party promptly for its proportionate share of such taxes. 9.4 Tax and Financial Reporting. 9.4.1 IRS Form 8594. If the parties mutually agree that a filing of Form 8594 is required, the parties will confer and cooperate in the preparation and filing of their respective forms to reflect a consistent reporting of the agreed upon allocation of the value of the Property. 9.4.2 Financial Reporting. ASSIGNOR and ASSIGNEE agree to furnish to each other at Closing or as soon thereafter as practicable any and all information and documents reasonably required to comply with tax and financial reporting requirements and audits. 9.4.3 Intangible Drilling Cost Recapture. ASSIGNOR and ASSIGNEE agree to furnish to each other, at Closing or as soon as practicable thereafter, data relative to deductions claimed, pursuant to Section 263(c) of the Internal Revenue Code of 1986, for intangible drilling costs related to the Property, and any other relevant data to allow each party to calculate the carryover intangible drilling costs associated with the Property that is subject to potential recapture under Section 1254(a) of the Internal Revenue Code of 1986. 9.5 Sales and Use Taxes. ASSIGNEE shall be responsible for and pay all federal, state, or local sales, transfer, gross proceeds, use and similar taxes incident or applicable to the Property it receives under this Agreement, or caused by the transfer of the Property to ASSIGNEE under this Agreement. If ASSIGNOR is required to pay such sales, use or similar taxes on behalf of ASSIGNEE, ASSIGNEE will reimburse ASSIGNOR at Closing for all sales and use taxes due and payable on the transfer of the Property to ASSIGNEE. 9.6 Income Taxes. Each party shall be responsible for its own state and federal income taxes, if any, as may result from this transaction. 9.7 Incidental Expenses. Each party shall bear its own respective expenses incurred in connection with the negotiation and Closing of this transaction, including its own consultants' fees, attorneys' fees, accountants' fees, and other similar costs and expenses. ARTICLE 10. OPERATIONS AFTER CLOSING ------------------------ 10.1 ASSIGNOR-Operated Properties. With respect to any of the Property operated by ASSIGNOR, after Closing and until such time as a successor operator of the Property has been selected in accordance with the applicable operating agreements and approved as operator of the Property by the MMS or state of Louisiana, as applicable (the "Interim Period"), ASSIGNOR shall continue to operate the Property. Such continued operations by ASSIGNOR during the Interim Period shall be for the account of ASSIGNEE and be conducted subject to ASSIGNEE's sole direction and right of control. In addition, ASSIGNOR's operation of the Property during the Interim Period shall be at the sole cost, risk and expense of ASSIGNEE, and such continued operations by ASSIGNOR shall be covered by ASSIGNEE's indemnity set forth in Section 8.3. In connection with the continued operation of the Property by ASSIGNOR during the Interim Period, ASSIGNOR shall be reimbursed by ASSIGNEE for all costs and expenses incurred by ASSIGNOR with respect thereto, including a charge for overhead in the same manner as provided in the applicable joint operating agreement, except that for any of the Property of which ASSIGNOR is one hundred percent (100%) owner, all attributable costs of production including overhead shall be computed in accordance with ASSIGNOR's existing accounting practices. ASSIGNOR will have no obligation to make capital expenditures or extraordinary operating expenditures in connection with the Property during the Interim Period. Additionally, ASSIGNOR may require ASSIGNEE to prepay on a monthly basis any and all expenses that ASSIGNOR estimates it will pay or incur in connection with the operation of the Property. If ASSIGNEE is ultimately selected as operator of the Property, ASSIGNEE will additionally reimburse ASSIGNOR for the amounts of any unpaid operating expenses and capital expenditures of other working interest owners paid or incurred by ASSIGNOR and attributable to operations during the Interim Period. ASSIGNOR will be entitled to retain any overhead payments received from other working interest owners and attributable to operations during the Interim Period. All costs and expenses incurred by ASSIGNOR in conjunction with such continued operations of the Property during the Interim Period shall be reimbursed to ASSIGNOR through an upward adjustment to the Purchase Price in the Final Settlement Statement. To the extent ASSIGNOR continues to operate the Property after the Final Settlement Statement, ASSIGNEE shall reimburse ASSIGNOR periodically upon receipt of ASSIGNOR's invoice therefor (unpaid invoices shall bear simple annual interest at the maximum allowed by the state of Louisiana). It is further expressly agreed and understood that once ASSIGNEE has been approved as operator of the Property by the MMS or other applicable agency, and the provisions of Section 5.4 have been complied with, ASSIGNOR shall not be obligated to continue operating any of the Property and ASSIGNEE will immediately assume full responsibility therefore and assume all operations thereon. After ASSIGNEE assumes operations of the Property, ASSIGNOR shall be granted access and reasonable ingress and egress onto and across the Property without any requirement of payment by ASSIGNOR to ASSIGNEE but otherwise at ASSIGNOR's sole risk, cost and expense to allow ASSIGNOR to remove from the Property any of its property excluded from this Agreement under Section 1.2, and any such access, ingress and egress shall be covered by ASSIGNOR's indemnity set forth in Section 8.4. ASSIGNOR shall make its personnel available to ASSIGNEE as may be reasonably necessary to assist in the transition of operations, and any such assistance shall be covered by ASSIGNEE's indemnity set forth in Section 8.3. ASSIGNOR does not warrant or guarantee that ASSIGNEE will become the operator of the Property or any portion thereof, as such matter will be controlled by the applicable operating agreement(s) and MMS or state of Louisiana regulatory requirements and approval. ASSIGNEE shall comply with all balloting procedures under such operating agreement(s) for the election of the successor operator to ASSIGNOR. 10.2 ASSIGNEE's Approval. In conducting operations after the Closing Date, ASSIGNOR shall have no duty to ASSIGNEE other than to follow ASSIGNEE's explicit instructions, except that ASSIGNOR shall (other than for emergency action taken in the face of serious risk of life, property or the environment), (i) obtain ASSIGNEE's prior written approval of all expenditures and proposed contracts and agreements, or amendments to existing contracts and agreements relating to the Property that involve individual commitments of more than $50,000 net to ASSIGNEE's interest in the Property; and (ii) obtain ASSIGNEE's written approval before voting under any operating, unit, joint venture or similar agreement. ASSIGNOR shall notify ASSIGNEE of any emergency action taken, and to the extent reasonably practicable, obtain ASSIGNEE's prior approval of such actions. However, except for emergency action that must be taken in the face of serious risk of life, property or the environment, ASSIGNOR will have no obligation to undertake any actions with respect to the Property that are not required in the course of the normal operation of the Property. ARTICLE 11. MISCELLANEOUS ------------- 11.1 Preferential Right to Purchase and Process Production. 11.1.1 ASSIGNOR's Right and Option. ASSIGNOR reserves and shall have the ongoing preferential right and option, but not the obligation, to purchase oil, condensate or other liquid Hydrocarbons ("Liquid Hydrocarbons") produced from the Property, and payment for such Liquid Hydrocarbons shall be at the same price and under the same terms and conditions offered to ASSIGNEE in any bona fide offer from a third party purchaser. If ASSIGNEE does not have a bona fide offer from a third party purchaser, then payment for such Liquid Hydrocarbons shall be at ASSIGNOR's posted price as specified in ASSIGNOR's posted price bulletin in effect on the delivery date for Liquid Hydrocarbons of like kind and quality to that produced from the Property (currently Conoco's South Louisiana Sweet (Onshore) posting), less per barrel taxes and transportation deductions. If ASSIGNOR does not have a posted price for Liquid Hydrocarbons from the Property, then payment for such Liquid Hydrocarbons shall be based on the published price of another major oil company on which ASSIGNOR and ASSIGNEE mutually agree, in effect on the delivery date for Liquid Hydrocarbons of like kind, quality, and location, less per barrel taxes and transportation deductions. ASSIGNOR also reserves and shall have the preferential right and option to purchase or process natural and casinghead gas, or other gaseous Hydrocarbons ("Gaseous Hydrocarbons") produced from the Property, with payment for the Gaseous Hydrocarbons purchased and/or gas products recovered to be at the same price and under the same terms and conditions offered to ASSIGNEE in any bona fide offer from a third party purchaser. If ASSIGNEE does not have a bona fide offer from a third party purchaser, then the price will be determined on the basis of an agreement between ASSIGNOR and ASSIGNEE containing terms generally acceptable in the area. 11.1.2 Third-Party Offers. If ASSIGNEE receives from a responsible, unaffiliated third-party a bona fide offer acceptable to ASSIGNEE to purchase Liquid Hydrocarbons or purchase and/or process Gaseous Hydrocarbons from the Property it receives, ASSIGNEE shall furnish ASSIGNOR a copy of this offer as written on the letterhead of the third-party offeror. ASSIGNOR shall then have one (1) day (or such shorter period as may be mutually agreeable to the parties) after receiving a copy of the offer to either waive its right or elect to purchase and/or process the Liquid Hydrocarbons or Gaseous Hydrocarbons, as applicable, on terms substantially equivalent to those offered to ASSIGNEE by the third-party offeror or on more favorable terms and conditions to ASSIGNEE. Failure to timely reply to ASSIGNEE's notice will be a one-time waiver of ASSIGNOR's preferential rights under this Section 11.1. Once waived, and if ASSIGNEE accepts the third-party offer, the preferential rights under this Section 11.1 will not be enforceable during the term of any sale or processing contract between ASSIGNEE and the third-party offeror. However, ASSIGNEE agrees not to enter into any sale or processing contract with a third-party offeror with a term in excess of six months in duration. 11.1.3 Miscellaneous. (i) The preferential rights in this Section 11.1 shall be subject to the expiration of any existing contracts for the purchase of Liquid Hydrocarbons or Gaseous Hydrocarbons from the Property between ASSIGNOR and third-party purchasers that are assigned to ASSIGNEE as part of the Related Contracts. (ii) The failure of ASSIGNOR to exercise its preferential rights to purchase Liquid Hydrocarbons or Gaseous Hydrocarbons from the Property under this Section 11.1 at any time or times shall not constitute a waiver of those preferential rights. (iii)For the purposes of this Agreement, any exchange or other disposition of Liquid Hydrocarbons or Gaseous Hydrocarbons from the Property will be considered a sale under this Section 11.1 and subject to ASSIGNOR's preferential rights under this Section 11.1. (iv) The preferential rights in this Section 11.1 shall be a covenant running with the land. 11.2 Dispute Resolution. Any dispute concerning this Agreement (other than Claims by a third party in litigation for which a party to this Agreement is claiming indemnity) shall be resolved under the mediation and binding arbitration procedures set forth in Exhibit H. Compliance with this Section 11.2 and the procedures set forth in Exhibit H shall constitute a condition precedent to either party seeking judicial enforcement of any provisions of this Agreement. The parties agree that the provisions of Exhibit H are a severable, independent arbitration agreement separately enforceable from the remainder of this Agreement. 11.3 Suspense Accounts. At ASSIGNOR's option and as soon as practical after the Closing, ASSIGNOR shall transfer to ASSIGNEE all funds held by ASSIGNOR in suspense related to proceeds of production and attributable to third parties' interests in the Leases or Hydrocarbon production from the Leases (but not including any suspended funds relating to any Claims described in Exhibit C), including funds suspended awaiting minimum disbursement requirements, funds suspended under division orders and funds suspended for title and other defects. If such funds are transferred to ASSIGNEE, ASSIGNEE agrees to administer all such accounts and assume all payment obligations relating thereto in accordance with all applicable laws, rules and regulations, and shall be liable for the payment thereof to the proper parties. 11.4 ASSIGNOR's Marks and Logos; Post-Closing Inspections. With respect to any of the Property that ASSIGNOR operates, ASSIGNEE agrees that within thirty (30) days after Closing or within thirty (30) days after operations are actually transferred, whichever is later, it will remove or cause to be removed the names and marks used by ASSIGNOR and all variations and derivatives thereof and logos relating thereto from the Property and will not thereafter make any use whatsoever of such names, marks and logos. If ASSIGNEE fails to comply with this Section 11.4, ASSIGNOR shall have access to the Property in order to remove such names, marks, and logos, all at ASSIGNEE's expense. ASSIGNOR shall also have the right, during reasonable business hours, to audit all records (excepting federal tax records and records subject to the attorney/client privilege) of ASSIGNEE pertaining to the Property for a period of two years from Closing. ASSIGNOR at its sole cost shall have the right at any time after Closing to reasonable access to the Property for the purpose of inspecting ASSIGNEE's compliance with the terms of this Agreement; provided, however, ASSIGNOR shall repair any damage to the Property resulting from such inspections and any such access shall be covered by ASSIGNOR's indemnity set forth in Section 8.4. 11.5 Survival of Representations and Warranties. All of the representations, warranties, covenants, indemnities and agreements of or by the parties to this Agreement will survive the Closing, the execution and delivery of the Assignment Documents and other instruments under this Agreement, and the transfer of the Property between the parties; and they shall not be merged into or superseded by the Assignment Documents or other documents delivered at Closing. However, neither party to this Agreement will be entitled to make a Claim against the other party in connection with the inaccuracy of the representations and warranties of the other party in this Agreement unless the other party is notified of that Claim in writing within one (1) year after the Closing Date. 11.6 Public Announcements. Neither party may make press releases or other public announcements concerning this transaction, without the other party's prior written approval and agreement to the form of the announcement, except as may be required by applicable laws or rules and regulations of any governmental agency or stock exchange. 11.7 Notices. All notices under this Agreement must be in writing. Any notice under this Agreement may be given by personal delivery, facsimile transmission, U.S. mail (postage prepaid), or commercial delivery service, and will be deemed duly given when received by the party charged with such notice and addressed as follows: If to ASSIGNOR: CONOCO INC. 600 North Dairy Ashford Houston, Texas 77079 Attention: Manager, Acquisitions and Divestitures Fax No.: (281) 293-5088 Telephone: (281) 293-1000 CONOCO OFFSHORE PIPE LINE COMPANY 600 N. Dairy Ashford Houston, Texas 77079 Attention: W. M. Hicks, Vice President Fax No.: (281) 293-3024 Telephone: (281) 293-2491 with copy to: CONOCO INC. 1000 South Pine P. O. Box 1267 Ponca City, Oklahoma 74603 Attention: Manager, Real Property Administration Fax No.: (405) 767-5479 Telephone: (405) 767-2233 If to ASSIGNEE: STONE ENERGY CORPORATION 625 East Kaliste Saloom Road Lafayette, Louisiana 70508 Attention: E. J. Louviere Title: Vice President, Land Fax No.: (337) 237-0996 Telephone: (337) 272-0415 Any party, by written notice to the other, may change the address or the individual to which or to whom notices are to be sent under this Agreement. 11.8 Effective Date. The Effective Date of this Agreement will be 11:59 p.m., local time, where the Property is located, on December 31, 2001. 11.9 Binding Effect; Assignment. Except as expressly provided in Section 2.7, prior to the later of the Closing Date or the Effective Date neither party may assign its rights or obligations under this Agreement without the prior written consent of the other, which may be withheld for any reason including convenience. If ASSIGNEE sells, transfers or assigns all or a portion of the Property, (i) this Agreement shall remain in effect between ASSIGNEE and ASSIGNOR as to all the Property regardless of such sale or assignment (and ASSIGNEE will remain obligated hereunder), and (ii) ASSIGNEE shall require its successors and assigns expressly to assume its obligations under this Agreement, to the extent related or applicable to the Property or portion thereof acquired by them. 11.10Entire Agreement and Amendment. This Agreement, together with any relevant confidentiality agreement referred to in Section 5.1, constitutes the entire understanding between the parties, replacing and superseding all prior negotiations, discussions, arrangements, agreements and understandings between the parties regarding the subject transaction and subject matter hereof (whether written or oral), excepting any written agreements that may be executed by the parties concurrently or after the execution of this Agreement. No other agreement, statement or promise made by any party, or to any employee, officer or agent of any party, which is not contained in this Agreement shall be binding or valid. This Agreement may be supplemented, altered, amended, modified or revoked by writing only, signed by the parties hereto. 11.11Interpretation. The parties stipulate and agree that this Agreement shall be deemed and considered for all purposes to have been jointly prepared by the parties, and shall not be construed against any one party (nor shall any inference or presumption be made) on the basis of who drafted this Agreement or any particular provision hereof, who supplied the form of Agreement, or any other event of the negotiation, drafting or execution of this Agreement. Each party agrees that this Agreement has been purposefully drawn and correctly reflects its understanding of the transaction that it contemplates. In construing this Agreement, the following principles will apply. 11.11.1 Examples shall not be construed to limit, expressly or by implication, the matter they illustrate. 11.11.2 The word "includes" and its derivatives means "includes, but is not limited to" and corresponding derivative expressions. 1.11.3 A defined term has its defined meaning throughout this Agreement and each Appendix, Exhibit and Schedule to this Agreement, regardless of whether it appears before or after the place where it is defined. 11.11.4 If there is any conflict or inconsistency between the provisions of the main body of this Agreement and the provisions of any Appendix, Exhibit, Schedule or executed Assignment Document, the provisions of this Agreement shall take precedence. If there is any conflict between the provisions of any pro forma Assignment Document or other transaction documents attached to this Agreement as an Appendix, Exhibit or Schedule and the provisions of any Assignment Documents and other transaction documents actually executed by the parties, the provisions of the executed Assignment Documents and other executed transaction documents shall take precedence. 11.11.5 The omission of certain provisions of this Agreement from the Assignment Documents does not constitute a conflict or inconsistency between this Agreement and the Assignment Documents, and will not effect a merger of the omitted provisions. To the fullest extent permitted by law, all provisions of this Agreement are hereby deemed incorporated into the Assignment Documents by reference. 11.11.6 The underlined Article, Section and Exhibit references in this Agreement refer to the Articles, Sections and Exhibits of this Agreement. The headings and titles in this Agreement are for convenience only and shall have no significance in interpreting or otherwise affect the meaning of this Agreement. 11.11.7 The plural shall be deemed to include the singular, and vice versa 11.11.8 The term "knowledge" as applied to either party, shall mean the actual knowledge of such party's officers and directors, and its employees, agents, or representatives at a supervisory level and above. 11.12Third-Party Beneficiaries. It is understood and agreed that there shall be no third-party beneficiary of this Agreement, and that the provisions hereof do not impart enforceable rights, benefits, or remedies in anyone who is not a party or a successor or assignee of a party hereto. 11.13Successors and Assigns. This Agreement binds and inures to the benefit of the parties hereto their respective permitted successors and assigns, and all the terms, provisions, covenants, obligations, indemnities, representations, warranties and conditions of this Agreement shall be enforceable by the parties hereto and their respective permitted successors and assigns. 11.14Severability. If any provision of this Agreement is found by a court of competent jurisdiction to be invalid or unenforceable, that provision will be deemed modified to the extent necessary to make it valid and enforceable and if it cannot be so modified, it shall be deemed deleted and the remainder of the Agreement shall continue and remain in full force and effect. 11.15Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original and all of which shall constitute one document. 11.16Governing Law. THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED, AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF LOUISIANA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS OTHERWISE APPLICABLE TO SUCH DETERMINATIONS. 11.17Exhibits. The Appendices, Exhibits and Schedules attached to this Agreement are incorporated into and made a part of this Agreement and, prior to Closing, ASSIGNOR and ASSIGNEE agree to revise or supplement the Appendices, Exhibits and Schedules, as and if necessary to more accurately describe the information mutually intended by the parties to be reflected thereon. 11.18Waiver. Any of the terms, provisions, covenants, representations, warranties or conditions hereof may be waived only by a written instrument executed by the party waiving compliance. Except as otherwise expressly provided in this Agreement, the failure of any party at any time or times to require performance of any provision hereof shall in no manner affect such party's right to enforce the same. No waiver by any party of any condition, or of the breach of any term, provision, covenant, representation or warranty contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of the breach of any other term, provision, covenant, representation or warranty. 11.19 Default and Remedies. 11.19.1 ASSIGNOR's Remedies. Upon failure of ASSIGNEE to perform any of the obligations under this Agreement to be performed by ASSIGNEE prior to and on the Closing Date, ASSIGNOR, at ASSIGNOR's sole option, may (i) enforce specific performance, or (ii) terminate this Agreement and retain the Performance Deposit as agreed liquidated damages and not as a penalty. The remedies set forth in this Section 11.19.1 shall be ASSIGNOR's sole and exclusive remedies for any such default, and ASSIGNOR hereby expressly waives and releases all other remedies (except as provided in Section 11.19.4). 11.19.2 ASSIGNEE's Remedies. Upon failure of ASSIGNOR to perform any of the obligations to be performed by ASSIGNOR prior to and on the Closing Date, ASSIGNEE, at ASSIGNEE's sole option, may (i) enforce specific performance, or (ii) terminate this Agreement and receive back the Performance Deposit (without interest) from ASSIGNOR. The remedies set forth in this Section 11.19.2 shall be ASSIGNEE's sole and exclusive remedies for such default, and ASSIGNEE hereby expressly waives and releases all other remedies (except as provided in Section 11.19.4). 11.19.3 Effect of Termination. Notwithstanding anything to the contrary in this Agreement (except Section 11.19.4), in the event of termination of this Agreement, the transaction shall not close and this Agreement shall become void and have no further effect whatsoever, and neither ASSIGNEE nor ASSIGNOR shall have any further liability, obligations, right or duty to the other under this Agreement, except as provided in Sections 11.19.1, 11.19.2, and 11.19.4, as applicable. 11.19.4 Other Remedies. Notwithstanding the provisions of Sections 11.19.1, 11.19.2 and 11.19.3, termination of this Agreement shall not prejudice or impair ASSIGNOR's or ASSIGNEE's rights and obligations under Sections 5.1 (and the confidentiality agreements referenced therein), 5.2 (ASSIGNEE's inspections), 5.3.2 (confidentiality of environmental data), and 11.2 (dispute resolution), and such other portions of this Agreement as are necessary to the enforcement and construction of Sections 5.1, 5.2, 5.3.2, and 11.2. IN WITNESS WHEREOF, the authorized representatives of Conoco, COPL and Stone execute this Agreement on the dates stated below. CONOCO INC. STONE ENERGY CORPORATION (formerly Continental Oil Company, Charter Number 0917525) By: /s/ W.E. Earnest By: /s/ D. Peter Canty ____________________________ _____________________________ Name: W. E. Earnest Name: D. Peter Canty ____________________________ _____________________________ Title: Attorney-in-Fact Title: President and CEO ____________________________ _____________________________ Date: October 8, 2001 Date: October 8, 2001 ____________________________ _____________________________ Witnesses: ________________________ Witnesses:_____________________________ ________________________ _____________________________ CONOCO OFFSHORE PIPE LINE COMPANY By: /s/ W.M. Hicks ______________________________ Name: W.M. Hicks ______________________________ Title: Vice-President ______________________________ Date: October 8, 2001 ______________________________ Witnesses: ___________________________ ___________________________ EX-2 4 exhibit2-2.txt SHARE AND PIPELINE PURCHASE AGREEMENT SHARE AND PIPELINE PURCHASE AGREEMENT by and between CONOCO INC. (formerly Continental Oil Company) Charter Number 0917525 and CONOCO OFFSHORE PIPE LINE COMPANY (SELLER) and STONE ENERGY CORPORATION (BUYER) --------------------- ALL SHARES OF CONOCO OFFSHORE INC. and SOUTH PASS 49 PIPELINE SYSTEM Offshore, Louisiana --------------------- Dated October 8, 2001 Effective December 31, 2001 SHARE AND PIPELINE PURCHASE AGREEMENT TABLE OF CONTENTS Page ARTICLE 1. PROPERTY DESCRIPTION...........................................1 1.1 The Property and the Assets..................................1 1.2 Exclusions from the Property.................................2 1.3 Ownership of Production from the Property....................4 1.4 Hydrocarbon Imbalances.......................................5 ARTICLE 2. CONSIDERATION..................................................5 2.1 Purchase Price...............................................5 2.2 Adjustments at Closing.......................................6 2.3 Adjustments after Closing....................................7 2.4 Payment Method...............................................8 2.5 Principles of Accounting.....................................8 2.6 Reporting Value of the Property..............................8 2.7 Section 1031 Exchange........................................8 ARTICLE 3. REPRESENTATIONS AND WARRANTIES.................................8 3.1 Reciprocal Representations and Warranties....................8 3.2 SELLER's Representations and Warranties......................9 3.3 BUYER's Representations and Warranties.......................11 3.4 Limitation as to Environmental Matters.......................12 3.5 Notice of Changes............................................12 3.6 Representations and Warranties Exclusive.....................12 ARTICLE 4. DISCLAIMER OF WARRANTIES.......................................12 4.1 Title; Encumbrances..........................................12 4.2 Condition and Fitness of the Property........................13 4.3 Information About the Property...............................13 4.4 Information in Exhibits......................................14 4.5 Subrogation of Warranties....................................14 4.6 Disclaimers Deemed Conspicuous...............................14 ARTICLE 5. DUE DILIGENCE REVIEW OF THE PROPERTY...........................14 5.1 Records Review and Confidentiality...........................14 5.2 Physical Inspection..........................................15 5.3 Environmental Assessment.....................................15 5.4 Government Approvals.........................................17 5.5 Preferential Rights and Consents to Assign...................18 5.6 Title Defects................................................20 5.7 Casualty Losses and Government Takings.......................21 5.8 Termination Due to Impairments to the Property...............22 ARTICLE 6. CLOSING AND POST-CLOSING OBLIGATIONS...........................22 6.1 Closing Date.................................................22 6.2 Conditions to Closing........................................23 6.3 Closing......................................................25 6.4 Post-Closing Obligations.....................................26 ARTICLE 7. ASSUMED AND RETAINED RIGHTS AND OBLIGATIONS....................27 7.1 BUYER's Rights After Closing.................................27 7.2 BUYER's Obligations After Closing............................27 7.3 SELLER's Obligations After Closing...........................28 7.4 Plugging and Abandonment Obligations.........................29 7.5 Environmental Obligations....................................30 ARTICLE 8. INDEMNITIES....................................................31 8.1 Definition of Claims.........................................31 8.2 Application of Indemnities...................................31 8.3 BUYER's Indemnity............................................32 8.4 SELLER's Indemnity...........................................32 8.5 Notices and Defense of Indemnified Claims....................33 8.6 SELLER's Indemnity Limit.....................................33 8.7 NORM.........................................................33 8.8 Pending Litigation and Claims................................33 8.9 Waiver of Consequential and Punitive Damages; Data Room Matters..........................................33 ARTICLE 9. TAXES AND EXPENSES............................................34 9.1 Recording Expenses..........................................34 9.2 Ad Valorem, Real Property and Personal Property Taxes.......34 9.3 Severance Taxes.............................................34 9.4 Tax and Financial Reporting.................................34 9.5 Sales and Use Taxes.........................................35 9.6 Income Taxes................................................35 9.7 Incidental Expenses.........................................35 9.8 Indemnity...................................................35 9.9 Cooperation.................................................35 9.10 Section 333(h)(10)Election..................................35 ARTICLE 10. (left blank intentionally)...................................35 ARTICLE 11. MISCELLANEOUS................................................35 11.1 Preferential Right to Purchase and Process Production......35 11.2 Dispute Resolution.........................................37 11.3 Suspense Accounts..........................................37 11.4 SELLER's Marks and Logos...................................37 11.5 Survival of Representations and Warranties.................37 11.6 Public Announcements.......................................37 11.7 Notices....................................................37 11.8 Effective Date.............................................38 11.9 Binding Effect; Assignment.................................38 11.10 Entire Agreement and Amendment............................38 11.11 Interpretation............................................38 11.12 Third-Party Beneficiaries.................................39 11.13 Successors and Assigns....................................39 11.14 Severability..............................................39 11.15 Counterparts..............................................40 11.16 Governing Law.............................................40 11.17 Exhibits..................................................40 11.18 Waiver....................................................40 11.19 Default and Remedies......................................40 11.20 SELLER's Audit Rights.....................................41 INDEX OF DEFINED TERMS Page Adverse Environmental Condition...........................................16 Agreement.................................................................1 Allocated Value...........................................................8 Asset Records.............................................................2 Assets....................................................................1 Assignment Documents......................................................25 BUYER.....................................................................1 BUYER's Assumed Obligations...............................................27 Casualty Loss.............................................................21 Claims....................................................................31 Closing...................................................................22 Closing Date..............................................................22 Code......................................................................8 COI.......................................................................1 Conoco....................................................................1 Consents..................................................................18 COPL......................................................................1 Corporation...............................................................1 Downstream Pipeline.......................................................1 Effective Date............................................................1 Environmental Defect Value................................................16 Environmental Laws........................................................16 Environmental Obligations.................................................30 Final Settlement Statement................................................7 Gaseous Hydrocarbons......................................................36 Government Taking.........................................................21 Hart-Scott-Rodino Act.....................................................18 Hydrocarbons..............................................................4 Includes..................................................................39 Inspector.................................................................15 Knowledge.................................................................39 Lease Property and Equipment..............................................2 Leases....................................................................2 Liquid Hydrocarbons.......................................................35 Miscellaneous Personal Property...........................................2 NORM......................................................................29 Performance Deposit.......................................................5 Permits and Easements.....................................................2 Pipeline Inventory........................................................4 Plugging and Abandonment Obligations......................................29 Post-Sale Hydrocarbon Imbalances..........................................2 Pre-closing Periods.......................................................35 Pre-Sale Hydrocarbon Imbalances...........................................4 Preferential Rights.......................................................18 Preliminary Settlement Statement..........................................6 Property..................................................................1 Property Taxes............................................................34 Purchase Price............................................................5 Purchased Shares..........................................................1 Related Contracts.........................................................2 SELLER....................................................................1 SELLER's Responsibility...................................................4 SELLER's Retained Obligations.............................................28 Stock Tank Oil............................................................4 STONE.....................................................................1 Title Defect..............................................................20 Wells.....................................................................2 SHARE AND PIPELINE PURCHASE AGREEMENT LIST OF EXHIBITS A Schedule 1 - Oil and Gas Leasehold Interests and Units Schedule 2 - Wells Schedule 3 - Platforms, Pipelines, Other Immovables and Equipment, and Miscellaneous Personal Property Schedule 4 - Easements, Surface Leases, and Permits Schedule 5 - Related Contracts Schedule 6 - Allocation of Purchase Price B B-1 - SELLER's Assignment Notice B-2 - BUYER's Assignment Notice C Pending Litigation and Claims Affecting the Assets D Schedule 1 - Form of Stock Power Schedule 2 - Bill of Sale E Assignment of Contracts F Nonforeign Affidavit G Production, Transportation and Processing Imbalances H Dispute Resolution Procedures I Performance Bond SHARE AND PIPELINE PURCHASE AGREEMENT (All Shares Of Conoco Offshore Inc. And South Pass 49 Pipeline System) This Share and Pipeline Purchase Agreement (the "Agreement"), executed on October 8, 2001, and effective as of 11:59 p.m. CST, December 31, 2001 (the "Effective Date"), is between CONOCO INC.(formerly Continental Oil Company, Charter Number 0917525, "Conoco"), a Delaware corporation, with offices at 600 North Dairy Ashford, Houston, Texas 77079, CONOCO OFFSHORE PIPE LINE COMPANY ("COPL"), a Delaware corporation, with offices at 600 North Dairy Ashford, Houston, Texas 77079, and STONE ENERGY CORPORATION ("STONE"), a Delaware corporation with offices at 625 East Kaliste Saloom Road, Lafayette, Louisiana 70508. As used in this Agreement, the term "SELLER" means Conoco and (to the extent of the Downstream Pipeline) COPL, and the term "BUYER" means Stone. Notwithstanding any other provision to the contrary, but subject to Section 6.2.8, the representations, warranties, covenants, obligations, liabilities and indemnities of Conoco and COPL under this Agreement are several and not joint. RECITALS: Conoco owns 100% of the shares of Conoco Offshore Inc. which in turn owns certain producing oil and gas properties in the Mississippi Canyon Area situated in the Gulf of Mexico, offshore the state of Louisiana, together with related facilities and contractual rights, and desires to assign and deliver 100% of the shares of Conoco Offshore Inc. to Stone. COPL owns an interest in a certain common carrier pipeline system associated with the producing oil and gas properties owned by Conoco Offshore Inc. and desires to assign its interest in this property, together with related facilities and contractual rights. Stone desires to acquire Conoco's and COPL's interests in Conoco Offshore Inc. and the pipeline system. Therefore, Conoco, COPL and Stone agree to the sale of Conoco's and COPL's interests in these shares, properties, facilities and contractual rights to Stone on the terms and conditions set forth in this Agreement. ARTICLE 1. PROPERTY AND ASSETS DESCRIPTION ------------------------------- 1.1 The Property and the Assets. Subject to the terms of this Agreement and except for the excluded items described under Section 1.2, SELLER shall sell, convey, and assign to BUYER and BUYER shall purchase, pay for, and accept all of SELLER's right and title to, and interest in, the following (collectively the "Property"): (i) one hundred percent (100 %) of the shares of Conoco Offshore Inc., a Delaware corporation ("COI" or the "Corporation", which was formerly called Continental Alaska Pipe Line Company) being 1000 shares represented by Certificate No. 3 issued on May 8, 1996 to Conoco (the "Purchased Shares"), and (ii) the pipeline system described in Exhibit A, Schedule 3, together with all permits, licenses, easements, rights-of-way, servitudes, land, surface leases, surface use agreements, and similar rights and interests applicable to or used in operating the pipeline system, and to the extent assignable or transferable, all contracts and contractual rights, obligations and interests INSOFAR ONLY as they cover and are attributable to the pipeline system (collectively the "Downstream Pipeline"). The assets and obligations of the Corporation include (collectively the "Assets"): 1.1.1 The oil, gas and mineral lease(s), operating rights and other interests in oil and gas described in Exhibit A, Schedule 1, and all rights, privileges and obligations appurtenant to those interests and leases, together with all rights and interest in any unit in which such leases are included (to the extent that such rights and interests arise from and are associated with such leases and operating rights), INSOFAR AND ONLY INSOFAR AS those interests, rights and leases cover and include the lands, depths and rights described in Exhibit A, Schedule 1 (the "Leases"); 1.1.2 All oil, gas and condensate wells (whether producing, not producing or abandoned), water source, water injection and other injection or disposal wells and systems located on the Leases, including those described in Exhibit A, Schedule 2 (the "Wells"), together with all equipment, facilities, pipelines, flow lines, gathering systems (other than gas plant gathering systems), platforms, caissons, subsea equipment, tank batteries, improvements, fixtures, inventory, spare parts, tools, movables, immovables, abandoned property and junk, and other personal property on the Leases or the sea floor covered by the Leases, or directly used held for use in developing or operating the Leases and Wells, or producing, treating, storing, compressing, processing or transporting Hydrocarbons on the Leases and Wells, including those items described in Exhibit A, Schedule 3 (the "Lease Property and Equipment"); 1.1.3 All permits, licenses, easements, rights-of-way, servitudes, land, surface leases, surface use agreements, and similar rights and interests applicable to or used in operating the Leases, Wells, and Lease Property and Equipment, as described in Exhibit A, Schedule 4 (the "Permits and Easements", which also includes the same for COPL and the Downstream Pipeline); 1.1.4 All contracts and contractual rights, obligations and interests INSOFAR ONLY as they cover and are attributable to the Leases, Wells, or Lease Property and Equipment, including without limitation unit agreements (and any declaration or order of any governmental authority associated therewith), farmout agreements, farmin agreements, operating agreements, and hydrocarbon sales, purchase, gathering, transportation, treating, marketing, exchange, processing and fractionating agreements, which include those described in Exhibit A, Schedule 5 (the "Related Contracts", which also includes the same for COPL and the Downstream Pipeline); 1.1.5 All rights against and obligations to third parties with respect to any production, transportation and processing imbalances attributable to Hydrocarbons produced from the Leases on and after the Effective Date (the "Post-Sale Hydrocarbon Imbalances"); and 1.1.6 All other tangibles, miscellaneous interests or other assets on or directly used in connection with the Leases, Wells, Lease Property and Equipment, Permits and Easements, and Related Contracts (the "Miscellaneous Personal Property"), including copies of all lease files, land files, well files, geologic and interpretive maps, well logs, the right to use and analyze cores and other physical samples or materials from the Wells, core analyses and other well test results, production records, division order files, abstracts, title opinions, and contract files, insofar as they are directly related to the Leases (the "Asset Records"). 1.2 Exclusions from the Property. The Property to be conveyed and assigned under this Agreement does not include: 1.2.1 Unless the parties otherwise agree in writing and enter into a separate data license agreement and except as expressly provided in Section 1.1.6 as property of COI, (i) seismic, geological, geochemical, or geophysical data (including cores and other physical samples or materials from wells or tests) belonging to SELLER or licensed from third parties, and (ii) interpretations of seismic, geological, geochemical or geophysical data belonging to SELLER or licensed from third parties; 1.2.2 SELLER's intellectual property, including proprietary computer software, computer software licensed from third parties, patents, pending patent applications, trade secrets, copyrights, and names, marks and logos; 1.2.3 SELLER's corporate, financial and tax records, and legal files, except that SELLER will provide BUYER with copies of any tax records that are necessary for BUYER's ownership, administration or operation of the Property or COI's ownership, administration or operation of the Leases, Wells, Lease Property and Equipment, or Related Contracts; 1.2.4 Notwithstanding any other provision of this Agreement to the contrary, any records or information that SELLER considers proprietary or confidential (including employee information and internal valuation data regarding its ownership of COI), or which SELLER cannot legally provide to BUYER because of third-party restrictions; 1.2.5 Trade credits and rebates from contractors and vendors, and adjustments or refunds attributable to any period before the Effective Date relative to the Property and Assets, including transportation tax credits and refunds, tariff refunds, take-or-pay claims, insurance premium adjustments, and audit adjustments under the Related Contracts, which BUYER will assign, convey and pay over, or ensure that COI assigns, conveys and pays over to SELLER; 1.2.6 Claims of SELLER or COI for refund of or loss carry forwards with respect to (i) production, windfall profit, severance, ad valorem or any other taxes attributable to any period prior to the Effective Date relative to the Property and Assets, (ii) income or franchise taxes, or (iii) any taxes attributable to the excluded items described in this Section 1.2, which BUYER will assign, convey and pay over, or ensure that COI assigns, conveys and pays over to SELLER; 1.2.7 (i) All deposits, cash, checks in process of collection, cash equivalents and funds attributable to any period prior to the Effective Date, (ii) all accounts and notes receivable attributable to any period prior to the Effective Date, and (iii) any security or other deposits made by Seller or COI with third parties prior to the Effective Date relative to the Property or Assets, which BUYER will assign, convey and pay over, or ensure that COI assigns, conveys and pays over to SELLER; 1.2.8 Claims and causes of action of SELLER or COI arising from acts, omissions or events, or damage or destruction of the Property or Assets before the Effective Date, and all rights, titles, claims and interests of SELLER or COI (i) under any policy or agreement of insurance or indemnity, (ii) under any bond or letter of credit, or (iii) to any insurance or condemnation proceeds or awards, which BUYER will assign, convey and pay over, or ensure that COI assigns, conveys and pays over to SELLER; 1.2.9 All rights, obligations, benefits, awards, judgments, and settlements, if any, applicable to the pending and potential litigation, Claims and proceedings listed under the section of Exhibit C entitled "SELLER's Responsibility"; 1.2.10 Any production sales contracts between SELLER and SELLER's affiliates or subsidiaries, and all swap, futures, or derivative contracts backed by or related to the Hydrocarbons; 1.2.11 SELLER's or COI's rights under any existing contracts providing for the gathering, compression, treating, transportation or processing of oil or gas produced from the Leases or Wells, other than those contracts listed on Exhibit A, Schedule 5 (BUYER will need to make its own arrangements for these matters with respect to its production from the Leases, and if COI is a party to such contracts, BUYER and SELLER will arrange for COI to assign such contracts to SELLER at Closing); 1.2.12 COI's interest in all rights against and obligations to third parties with respect to any production, transportation and processing imbalances which exist and are attributable to Hydrocarbons produced from the Leases prior to the Effective Date (the "Pre-Sale Hydrocarbon Imbalances"), which shall be handled pursuant to Section 1.4. 1.3 Ownership of Production from the Property. 1.3.1 Production Before the Effective Date. (i) SELLER will receive the benefit of all merchantable oil, gas, condensate and gas liquids ("Hydrocarbons") produced from the Assets before the Effective Date. If, on the Effective Date, Hydrocarbons produced from the Assets before the Effective Date are stored in the Lease or unit stock tanks (the "Stock Tank Oil"), or in Lease or unit gathering lines or production facilities upstream of the sale or custody transfer meters of the purchaser or processor of Hydrocarbon production from the Assets (the "Pipeline Inventory"), BUYER shall pay to SELLER the value of the merchantable Stock Tank Oil above pipeline connections in the stock tanks and the Pipeline Inventory for the market value which shall be based upon (1) for oil, SELLER's posted price for South Louisiana Sweet (Onshore) crude oil at Empire, Louisiana, less taxes and transportation fees deducted by the purchaser of such oil, and (2) for gas plant products, if any, the market value of the unsold inventory at the point of sale. BUYER will pay SELLER for the value of Stock Tank Oil and Pipeline Inventory as an adjustment to the Purchase Price at Closing, as provided in Section 2.2. (ii) The Stock Tank Oil and the Pipeline Inventory will be gauged and measured as of 7:00 a.m. Central Standard Time on January 1, 2002. SELLER and BUYER will accept the Lease or unit operator's tank gauge readings, meter tickets or other inventory records of the Stock Tank Oil and Pipeline Inventory. 1.3.2 Production After the Effective Date. COI will own and receive the benefit of all Hydrocarbons produced from the Assets after the Effective Date. Subject to any continuing sale obligations under the Related Contracts, and SELLER's preferential right to purchase Hydrocarbons from the Assets, as provided in Section 11.1, COI may sell Hydrocarbons produced from the Assets on and after the Closing Date as it deems appropriate. 1.4 Hydrocarbon Imbalances. SELLER represents to BUYER that, although SELLER will make a good faith attempt to cause COI to balance the Assets to zero as of the Effective Date, as indicated in Exhibit G, certain imbalances may exist with third parties as a result of production, transportation, processing or sales of Hydrocarbons attributable to COI's ownership of Hydrocarbons produced from the Assets prior to the Effective Date. The imbalances are such that COI is either entitled to make up or receive delivery of Hydrocarbons, or payments in lieu thereof, in accordance with the provisions of certain applicable gas balancing and other agreements. BUYER and SELLER agree that all liabilities, duties, obligations, benefits and entitlements with respect to all such imbalances are specifically reserved by SELLER (and shall, if necessary, be assigned to SELLER by COI at Closing), and that SELLER shall have all of its or COI's contractual rights with third parties as a result of such imbalances, but retains no right to balance any such Hydrocarbons in kind from COI's share of production from the Leases. BUYER and SELLER further agree that the existence of such imbalances owed by or to COI or SELLER shall not be deemed to be a Title Defect, and that BUYER (and COI after Closing) shall have no liabilities, duties, obligations, benefits or entitlements whatsoever to any such imbalances. To the extent COI or BUYER are requested to deliver Hydrocarbons from the Leases after the Effective Date to any third party as a result of any imbalance in existence as of the Effective Date, SELLER hereby covenants and further agrees promptly to deliver to BUYER or COI, upon BUYER's written demand, a like quantity and quality of Hydrocarbons. Said Hydrocarbons will be delivered by SELLER to BUYER or COI at a mutually acceptable location whereby BUYER or COI receives the same value, giving consideration to all relevant factors, including location, transportation costs, pipeline fuel charges, and differences in pipeline fuel charges and quality and heating content. To the extent COI or SELLER is entitled to make up or receive delivery of Hydrocarbons from other co-owners in the Leases after the Effective Date as a result of any imbalance in existence as of the Effective Date, and COI or SELLER is unable to secure a payment or other delivery of the imbalance elsewhere than at the Leases, BUYER hereby covenants and further agrees to receive such Hydrocarbons for the account of COI or SELLER, upon COI's or SELLER's written request, and to redeliver such Hydrocarbons to COI or SELLER. If SELLER and BUYER determine no later than one (1) year after Closing that the Pre-Sale Hydrocarbon Imbalances stated in Exhibit G are inaccurate, the parties agree that the remedies provided in this Section 1.4 are their sole remedies for any difference between the Pre-Sale Hydrocarbon Imbalances set forth in Exhibit G and the correct Pre-Sale Hydrocarbon Imbalances determined by the parties, all other remedies as between SELLER and BUYER being waived and released regardless of when any inaccuracy may be discovered or adjustments in balancing accounts may be made. ARTICLE 2. CONSIDERATION ------------- 2.1 Purchase Price. 2.1.1 Amount Due at Closing. At Closing, BUYER will pay SELLER Fifty-Three Million, Seven Hundred Thousand dollars (U.S. $ 53,700,000) for the Property (the "Purchase Price"), adjusted by the Closing adjustments specified in Section 2.2. The Purchase Price will be subject to the further post-Closing adjustments specified in Section 2.3. For purposes of this Agreement and for federal income tax purposes, the Purchase Price will be allocated among the Purchased Shares and Downstream Pipeline, and among depreciable assets and nondepreciable (or depletable) assets as provided in Exhibit A, Schedule 6. 2.1.2 Performance Deposit. Upon execution of this Agreement, BUYER shall pay to SELLER ten percent (10%) of the Purchase Price (U.S. $ 5,370,000) as a performance deposit ("Performance Deposit") on the Property to be transferred to BUYER to assure BUYER's performance under this Agreement. The Performance Deposit is solely to assure the performance of BUYER pursuant to the terms and conditions of this Agreement. If BUYER refuses or is unable for any reason (including failure to obtain financing) to close the transaction in accordance with the terms of this Agreement, SELLER may, at its sole option, retain the Performance Deposit as agreed liquidated damages and not as a penalty. However, if this Agreement is terminated pursuant to the provisions of Sections 5.3 (Environmental Assessment), 5.4 (Governmental Approvals), 5.6 (Title Defects), 5.7 (Casualty Loss), 5.8 (Termination Due to Impairments to the Property) or 11.19.2 (BUYER's Remedies) of this Agreement, the Performance Deposit shall be returned without interest as provided in this Agreement. If Closing occurs, SELLER at its sole option may either (i) return the Performance Deposit to BUYER, without interest, at Closing, in which case BUYER must pay SELLER the full amount of the Purchase Price at Closing, adjusted as provided in Section 2.2, or (ii) retain and credit the Performance Deposit against the Purchase Price at Closing, in which case BUYER must pay SELLER an amount equal to the Purchase Price, adjusted as provided in Section 2.2, less the Performance Deposit. 2.2 Adjustments at Closing. 2.2.1 Preliminary Settlement Statement. At Closing, the Purchase Price will be adjusted as set forth in Sections 2.2.2 and 2.2.3. No later than five (5) business days prior to Closing, SELLER will provide BUYER a Preliminary Settlement Statement identifying all adjustments to the Purchase Price to be made at Closing (the "Preliminary Settlement Statement"). SELLER and BUYER acknowledge that some items in the Preliminary Settlement Statement may be estimates or otherwise subject to change in the Final Settlement Statement for the Property, to be prepared pursuant to Section 2.3. 2.2.2 Upward Adjustments. The Purchase Price will be increased by the following expenses and revenues: (i) SELLER's and COI's share of all actual production expenses, operating expenses, overhead charges under applicable operating agreements and capital expenditures paid or incurred by SELLER or COI in connection with the Assets and Downstream Pipeline (including without limitation royalties, minimum royalties, rentals, and prepaid charges), to the extent they are attributable to the ownership or operation of the Assets and Downstream Pipeline after the Effective Date; (ii) SELLER's and COI's share of any proceeds from the sale of Hydrocarbon production and other income from the Assets and Downstream Pipeline received by BUYER or COI, to the extent they are attributable to the ownership or operation of the Assets and Downstream Pipeline before the Effective Date, and the value of the Stock Tank Oil and the Pipeline Inventory; and (iii)Any other increases in the Purchase Price specified in this Agreement or otherwise agreed in writing between SELLER and BUYER prior to or at Closing. 2.2.3 Downward Adjustments. The Purchase Price will be decreased by the following expenses and revenues: (i) SELLER's and COI's share of all actual production expenses, operating expenses, overhead charges under applicable operating agreements and capital expenditures paid or incurred by BUYER or COI in connection with the Assets and Downstream Pipeline (including without limitation royalties, minimum royalties, rentals, and prepaid charges), to the extent they are attributable to the ownership or operation of the Assets and Downstream Pipeline before the Effective Date; (ii) SELLER's and COI's share of any proceeds from the sale of Hydrocarbon production (before deduction of any royalties under the applicable pricing provisions of any oil, gas and gas plant liquids sales and processing agreements) and other income received by SELLER or COI from the Assets and Downstream Pipeline, to the extent they are attributable to the ownership or operation of the Assets and Downstream Pipeline after the Effective Date; and (iii)Any other decreases in the Purchase Price specified in this Agreement or otherwise agreed in writing between SELLER and BUYER prior to or at Closing. 2.3 Adjustments after Closing. 2.3.1 Final Settlement Statement. Within 120 days after Closing, SELLER will prepare a final settlement statement for the Property containing a final reconciliation of the adjustments to the Purchase Price specified in Section 2.2 (the "Final Settlement Statement"). (However, failure of SELLER to complete the Final Settlement Statement within 120 days after Closing will not constitute a waiver of any right to an adjustment otherwise due.) BUYER will have 30 days after receiving the Final Settlement Statement to provide SELLER with written exceptions to any items in the Final Settlement Statement that BUYER believes in good faith to be questionable. All items in the Final Settlement Statement to which BUYER does not except within the 30-day review period will be deemed correct. 2.3.2 Payment of Post-Closing Adjustments. Any additional adjustments to the Purchase Price (including disputed items) will be offset against each other so that only one payment is required. The party owing payment will pay the other party the net post-closing adjustment to the Purchase Price within 10 days after the expiration of BUYER's 30-day review period for the Final Settlement Statement. However, the payment of any disputed items will be subject to the further rights of the parties under Section 2.3.3. 2.3.3 Resolution of Disputed Items. After the completion and delivery of the Final Settlement Statement, the parties agree to negotiate in good faith to attempt to reach agreement on the amount due with respect to any disputed items in the Final Settlement Statement. If the parties reach agreement on the amount due with respect to any disputed items, and a payment adjustment is required, the party owing payment will pay the other party within 10 days after the parties reach agreement. If the parties are unable to agree on the amount due with respect to any disputed items within 60 days after SELLER receives BUYER's written exceptions to the Final Settlement Statement, then the dispute shall be resolved under the dispute resolution provisions of Exhibit H. 2.3.4 Further Revenues and Expenses. After the completion of the post-Closing adjustments under this Section 2.3, (i) if either party receives revenues that belong to the other party under this Agreement (or COI receives revenues for which a Purchase Price adjustment would otherwise be required), those revenues (or an equivalent amount) will be remitted to the other party, and (ii) if either party pays expenses that are the responsibility of the other party under this Agreement (or COI pays expenses for which a Purchase Price adjustment would otherwise be required), those expenses will be promptly reimbursed to the other party for such expenses upon receiving satisfactory evidence of such payment. However, neither party will be obligated to reimburse the other party for any such expenses in excess of $5,000 unless it has been consulted about that expense prior to payment, unless that payment was required by a government agency or other government entity. 2.4 Payment Method. Unless the parties otherwise agree in writing, all payments under this Agreement will be by wire transfer in immediately available funds to the account(s) designated by the party receiving payment. 2.5 Principles of Accounting. The Preliminary Settlement Statement and Final Settlement Statement will be prepared in accordance with generally accepted accounting principles in the petroleum industry and with reasonable supporting documentation for each item in those statements. 2.6 Reporting Value of the Property. Neither party will take any position in preparing financial statements, tax returns, reports to shareholders or governmental authorities, or otherwise, that is inconsistent with allocation of value for the Property in Exhibit A, Schedule 6, unless the parties otherwise agree in writing. The value assigned to each portion of the Property in Exhibit A, Schedule 6 is hereafter referred to as the "Allocated Value" of that portion of the Property. 2.7 Section 1031 Exchange. SELLER and BUYER hereby agree that either SELLER or BUYER shall have the right at any time prior to Closing to assign all or a portion of its rights under this Agreement to a Qualified Intermediary (as that term is defined in Section 1.1031(k)-1(g)(4)(v) of the Treasury Regulations) in order to accomplish the transaction in a manner that will comply, either in whole or in part, with the requirements of a like-kind exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended, (the "Code"). In the event either party assigns its rights under this Agreement pursuant to this Section 2.7, such party agrees to notify the other party in writing of such assignment at or before Closing. If SELLER assigns its rights under this Agreement for this purpose, BUYER agrees to (i) consent to SELLER's assignment of its rights in this Agreement in form attached hereto as Exhibit B-1, and (ii) pay the Purchase Price into a qualified escrow or qualified trust account at Closing as directed in writing. If BUYER assigns its rights under this Agreement for this purpose, SELLER agrees to (i) consent to BUYER's assignment of its rights in this Agreement in the form of Exhibit B-2, (ii) accept the Purchase Price from the qualified escrow or qualified trust account at Closing, and (iii) at Closing, convey and assign directly to BUYER the Property which is the subject of this Agreement upon satisfaction of the other conditions to Closing and other terms and conditions hereof. SELLER and BUYER acknowledge and agree that any assignment of this Agreement to a Qualified Intermediary shall not release either party from any of their respective liabilities and obligations to each other under this Agreement, and that neither party represents to the other that any particular tax treatment will be given to either party as a result thereof. ARTICLE 3. REPRESENTATIONS AND WARRANTIES 3.1 Reciprocal Representations and Warranties. By their execution of this Agreement, SELLER and BUYER each represent and warrant that the following statements are true and accurate as to itself, as of the execution date of this Agreement, the Effective Date and the Closing Date. 3.1.1 Corporate Authority. It is a corporation duly organized and in good standing under the laws of its state of incorporation, is duly qualified to carry on its business in the states or jurisdictions where the Property is located, and has all the requisite power and authority to enter into and perform this Agreement. 3.1.2 Requisite Approvals. Upon execution of this Agreement, it will have taken all necessary actions pursuant to its articles of incorporation, by-laws and other governing documents to fully authorize (i) the execution and delivery of this Agreement and any transaction documents related to this Agreement; and (ii) the consummation of the transaction contemplated by this Agreement. 3.1.3 Validity of Obligation. This Agreement and all other transaction documents it is to execute and deliver on or before the Closing Date (i) have been duly executed by its authorized representatives; (ii) constitute its valid and legally binding obligations; and (iii) are enforceable against it in accordance with their respective terms. 3.1.4 No Violation of Contractual Restrictions. Its execution, delivery and performance of this Agreement does not conflict with or violate any agreement or instrument to which it is a party or by which it is bound, except any provision contained in agreements customary in the oil and gas industry relating to (i) required consents to transfer and related provisions; and (ii) any other third-party approvals or consents contemplated in this Agreement. 3.1.5 No Violation of Other Legal Restrictions. Its execution, delivery and performance of this Agreement does not violate any law, rule, regulation, ordinance, judgment, decree or order to which it or the Property is subject. 3.1.6 No Restraining Litigation. To its knowledge and subject to those matters listed in Exhibit C, there is no action, suit, proceeding, claim or investigation by any person, entity, administrative agency or governmental body pending or, to its knowledge, threatened, against it before any court or governmental agency that seeks to restrain or prohibit, or to obtain substantial damages from it, with respect to this Agreement or the consummation of all or part of the transaction contemplated in this Agreement. 3.1.7 Bankruptcy. There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by, or to its actual knowledge, threatened against it. 3.1.8 Broker's Fees. It has not incurred any obligation for brokers, finders or similar fees for which the other party would be liable. 3.2 SELLER's Representations and Warranties. By its execution of this Agreement, SELLER represents and warrants to BUYER that the following statements are true and accurate, as of the execution date of this Agreement, the Effective Date and the Closing Date. 3.2.1 Mortgages and Other Instruments. The transfer of the Property to BUYER does not violate any covenants or restrictions imposed on SELLER by any bank or other financial institution in connection with a mortgage or other instrument, and will not result in the creation or imposition of a lien on any portion of the Property. 3.2.2 Compliance with Laws. Except as disclosed by SELLER in writing prior to Closing and limited by Section 3.4, if SELLER is the operator of the Property, to SELLER's knowledge, it is in compliance with all laws, rules, regulations and orders pertaining to the Property. 3.2.3 Permits. Except as disclosed by SELLER in writing prior to Closing and limited by Section 3.4, if SELLER is the operator of the Property, to SELLER's knowledge, it has all governmental permits necessary for the operation of the Property and is not in default under any permit, license or agreement relating to the operation and maintenance of the Property. 3.2.4 Lawsuits and Claims. Except as disclosed in Exhibit C to this Agreement and limited by Section 3.4, to SELLER's knowledge, there is no demand or lawsuit, nor any compliance order, notice of probable violation or similar governmental action, pending or threatened before any court or governmental agency that (i) would result in an impairment or loss of title to any part of the Property, or substantial impairment of the value thereof, or (ii) would hinder or impede the operation of the Property. 3.2.5 COI Existence and Powers. The Corporation is a corporation duly incorporated, organized and validly existing under the laws of the state of Delaware, is authorized to carry on business in the states of Louisiana and Delaware, and has all necessary corporate power to own the Corporation's properties (including and the power and right to own oil and gas leases and interests in the Outer Continental Shelf), and to carry on the Corporation's business as such business is now being conducted (prior to Closing SELLER will arrange for COI to terminate its authorization to do business in the states of Alaska, Oklahoma and Texas). 3.2.6 SELLER's Authority. SELLER is the holder of record and is the sole legal and/or beneficial owner of the Purchased Shares and has the absolute right, title, and authority to sell, convey and assign the Purchased Shares to BUYER. 3.2.7 No Subsidiaries. The Corporation does not own shares or interests in any other entity or subsidiary, and is not party to any agreement to acquire shares or interests in any other entity or subsidiary. 3.2.8 Purchased Shared Unencumbered. SELLER, COI and their affiliates have not alienated or encumbered the Purchased Shares or any part or portion thereof, and the Purchased Shares have not been assigned, sold, pledged, or hypothecated by SELLER, and are and will be acquired by BUYER free and clear of all liens, charges, pledges, claims, demands, security interests, adverse claims, equities and encumbrances of every nature and kind whatsoever. 3.2.9 Purchased Shares Valid. the Purchased Shares have been validly issued by the Corporation and are outstanding as fully paid and non-assessable. 3.2.10 No Share Contracts. Except pursuant to this Agreement, no person or entity now has any contract, commitment, agreement, understanding, arrangement, option, warrant or any right or privilege, whether by law, preemptive or contractual, absolute or contingent (including on the exercise of one or more rights of conversion) which is capable of becoming an agreement or right for the acquisition, purchase, subscription, allotment or issuance of any of the Purchased Shares or any of the unissued shares in the capital of the Corporation or of any securities of the Corporation including but not restricted to any convertible securities or obligations of any nature or kind whatsoever. 3.2.11 No shareholder Agreements. There exists no shareholder or other agreement in effect which affects the transferability of the Purchased Shares. Neither SELLER nor the Corporation is a party to any voting trust agreement, unanimous shareholders agreement, pooling agreement or other contract, agreement, arrangement, commitment, plan or understanding restricting or otherwise relating to voting or dividend rights with respect to any securities of the Corporation (including the Purchased Shares). 3.2.12 Private Company. The Corporation is a private company and has no filing or reporting obligations pursuant to any securities legislation of any jurisdiction. 3.2.13 No Dividends. Since September 28, 2001, the Corporation has not (i) declared and paid or set aside for payment any dividend, whether in cash, shares or otherwise; (ii) reduced the Corporation's stated capital in any manner or purchased, acquired, cancelled or redeemed, or agreed to purchase, acquire, cancel or redeem, any outstanding shares in the Corporation's issued capital (but the Corporation will declare and pay dividends to SELLER at or prior to Closing as provided in Section 6.3 (xiv)). 3.2.14 Dividends Paid. All dividends which have been declared by the Corporation have been paid in full (but the Corporation will declare and pay dividends to SELLER at or prior to Closing as provided in Section 6.3 (xiv)). 3.2.15 No Guarantees. The Corporation has not given or agreed to give, or is a party to or bound by, any continuing guarantee or indemnity in respect of indebtedness, or other obligations of any other person or entity that are, in the aggregate, material other than those: (i) that were incurred in the ordinary course of business, or (ii) are contained within the Leases and Related Contracts. 3.2.16 No Debt. The Corporation is not indebted to SELLER. 3.2.17 No Employees. The Corporation has no, and never has had, employees. 3.2.18 No Asset Encumbrances. Except as may be provided in the Related Contracts applicable to the Assets, COI has not alienated or encumbered the Assets by, through or under COI. 3.3 BUYER's Representations and Warranties. By its execution of this Agreement, BUYER represents and warrants to SELLER that the following statements are true and accurate, as of the execution date of this Agreement, the Effective Date and the Closing Date. 3.3.1 Independent Evaluation. BUYER is an experienced and knowledgeable investor in the oil and gas business. BUYER has been advised by and has relied solely on its own expertise and legal, tax, reservoir engineering and other professional counsel concerning this transaction, the Property and the value thereof. 3.3.2 Qualification. BUYER is now or at Closing will be, and thereafter will continue to be, qualified to own and operate any federal or state of Louisiana oil, gas and mineral leases that constitute part of the Property, including meeting all bonding requirements. Consummating the transaction contemplated in this Agreement will not cause BUYER to be disqualified or to exceed any acreage limitation imposed by law, statute or regulation. 3.3.3 Securities Laws and BUYER's Other Dealings. BUYER has complied with all federal and state securities laws applicable to the sale of the Property and will comply with such laws if it subsequently disposes of all or any part of the Property. BUYER is acquiring the Property for its own account and not with a view to, or for offer of resale in connection with, a distribution thereof, within the meaning of the Securities Act of 1933, 15 U.S.C.ss. 77a et -- seq., and any other rules, regulations, and laws pertaining to the distribution of securities. Except for traditional mortgage financing from reputable financial institutions, BUYER has not sought or solicited, nor is BUYER participating with, investors, partners or other third parties in order to fund the Purchase Price or the Performance Deposit and to close this transaction, and all funds used by BUYER in connection with this transaction are BUYER's own funds. 3.3.4 BUYER's Funds. BUYER has arranged or will arrange to have available by the Closing Date sufficient funds to enable the BUYER to pay in full the Purchase Price as herein provided and otherwise to perform its obligations under this Agreement without financing that is subject to any material contingency. 3.3.5 BUYER Financial Statements. BUYER's financial statements supplied to SELLER, together with the notes thereto, are complete and correct in all material respects and present fairly the financial position and the results of operations of BUYER as of the dates and for the periods therein indicated, and all such statements have been prepared and conformed with accounting principles generally applied on a consistent basis throughout the periods involved. Since the last date of such financial statements, there has not been any material adverse change, however caused, in the business, assets, liabilities (actual or contingent), earnings, financial or other conditions or other operations of BUYER. 3.3.6 No Holding Company. BUYER is not (i) a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," or a "public utility company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (ii) subject in any respect to the provisions of that act. 3.3.7 No Investment Company. BUYER is not (i) an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, or (ii) subject in any respect to the provisions of that act. 3.4 Limitation as to Environmental Matters. The warranties and representations of SELLER in this Article 3 do not extend to environmental matters, permits, compliance with environmental laws and regulations, and environmental lawsuits and environmental Claims pertaining to the ownership or operation of the Property or COI's ownership or operation of the Assets. All liabilities and obligations of SELLER, COI and BUYER with respect to environmental matters, permits, compliance with environmental laws and regulations, and environmental lawsuits and environmental Claims pertaining to the ownership or operation of the Property and COI's ownership or operation of the Assets will be governed solely and exclusively by the provisions of Sections 5.3, 5.8, 7.5, and 8.4, regardless of the warranties or representations in this Article 3. 3.5 Notice of Changes. Prior to Closing, SELLER and BUYER will each give the other prompt written notice of any matter materially affecting any of their representations or warranties under this Article 3 or rendering any such warranty or representation untrue or inaccurate. 3.6 Representations and Warranties Exclusive. All representations and warranties contained in this Agreement (including without limitation those in this Article 3) are exclusive, and are given in lieu of all other representations and warranties, express or implied. ARTICLE 4. DISCLAIMER OF WARRANTIES ------------------------ 4.1 Title; Encumbrances. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, SELLER CONVEYS THE PROPERTY TO BUYER--AND THE ASSETS ARE--SUBJECT TO ALL ROYALTIES, OVERRIDING ROYALTIES, BURDENS, LIENS, ENCUMBRANCES, AND SURFACE RIGHTS, AND WITHOUT WARRANTY OF TITLE, EXPRESS, STATUTORY, OR IMPLIED. 4.2 Condition and Fitness of the Property. Except as expressly set forth in this Agreement, SELLER CONVEYS THE PROPERTY TO BUYER WITHOUT ANY EXPRESS, STATUTORY OR IMPLIED WARRANTY OR REPRESENTATION OF ANY KIND, INCLUDING WARRANTIES RELATING TO (i) THE CONDITION OR MERCHANTABILITY OF THE PROPERTY OR ASSETS, (ii) THE FITNESS OF THE PROPERTY OR ASSETS FOR A PARTICULAR PURPOSE, OR (iii) CONFORMITY TO MODELS OR SAMPLES OF MATERIALS. BUYER HAS INSPECTED, OR BEFORE CLOSING WILL INSPECT OR WILL HAVE BEEN GIVEN THE OPPORTUNITY TO INSPECT, THE PROPERTY AND ASSETS AND IS SATISFIED AS TO THE PHYSICAL, OPERATING, REGULATORY COMPLIANCE, SAFETY, AND ENVIRONMENTAL CONDITION (BOTH SURFACE AND SUBSURFACE) OF THE PROPERTY AND ASSETS AND ACCEPTS THE PROPERTY (AND ACKNOWLEDGES COI'S ASSETS TO BE) "AS IS," "WHERE IS," AND "WITH ALL FAULTS" and in its present condition and state of repair. Without limiting the generality of the foregoing, SELLER makes no representation or warranty as to (i) the amount, value, quality, quantity, volume or deliverability of any oil, gas or other minerals or reserves (if any) in, under or attributable to the Assets and Downstream Pipeline, (ii) the physical, operating, regulatory compliance, safety or environmental condition of the Assets and Downstream Pipeline (including the ability of any computer and electronic equipment comprising a part of the Assets and Downstream Pipeline to recognize, properly compute, or otherwise function on or after January 1, 2000), or (iii) the geological or engineering condition of the Assets and Downstream Pipeline or any value thereof. WITH RESPECT TO THE EASEMENTS, RIGHTS-OF-WAY AND PERMITS FOR THE PIPELINES COMPRISING A PART OF THE PROPERTY AND ASSETS (INCLUDING THE DOWNSTREAM PIPELINE), SELLER EXPRESSLY DISCLAIMS, AND BUYER HEREBY WAIVES, ALL WARRANTIES AND REPRESENTATIONS THAT SELLER OR COI (OR THEIR RESPECTIVE OPERATORS) OWNS THE EASEMENTS, RIGHTS-OF-WAY AND PERMITS; THAT THEY ARE IN FORCE AND EFFECT; THAT THEY MAY BE ASSIGNED; THAT THEY ARE CONTIGUOUS; THAT THE PIPELINES LIE WITHIN THE EASEMENTS, RIGHTS-OF-WAY AND PERMITS; OR THAT THEY GRANT THE RIGHT TO LAY, MAINTAIN, REPAIR, REPLACE, OPERATE, CONSTRUCT, OR REMOVE THE PIPELINES. SELLER EXPRESSLY DISCLAIMS, AND BUYER HEREBY WAIVES, ALL WARRANTIES AND REPRESENTATIONS THAT THERE ARE ANY EASEMENTS, RIGHTS-OF-WAY, OR PERMITS IN FORCE AND EFFECT WITH RESPECT TO THE PIPELINES. If necessary, BUYER shall secure its own rights to operate and maintain the pipelines on the land of others at its own expense. If any consents of third parties are required to assign the easements, rights-of-way, permits, or other agreements with respect to the pipelines, BUYER shall secure any necessary consents to assign at its own expense; provided, however, SELLER shall provide such assistance to BUYER to secure the consents as may reasonably be required. 4.3 Information About the Property. Except as expressly set forth in this Agreement, the parties to this Agreement each disclaim all liability and responsibility for any representation, warranty, statements or communications (orally or in writing) to the other party (including, but not limited to, any information contained in any opinion, information or advice that may have been provided to any such party by any employee, officer, director, agent, consultant, engineer or engineering firm, trustee, representative, partner, member, beneficiary, stockholder or contractor of such disclaiming party or its affiliates) wherever and however made, including those made in any data room and any supplements or amendments thereto or during any negotiations with respect to this Agreement or any confidentiality agreement previously executed by the parties with respect to the Property and Assets. SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, STATUTORY OR IMPLIED, AS TO (i) THE ACCURACY, COMPLETENESS, OR MATERIALITY OF ANY DATA, INFORMATION OR RECORDS FURNISHED TO BUYER IN CONNECTION WITH THE ASSETS AND DOWNSTREAM PIPELINE; (ii) INFORMATION CONCERNING THE QUALITY AND QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE ASSETS; (iii) INFORMATION CONCERNING THE ABILITY OF THE ASSETS TO PRODUCE HYDROCARBONS, INCLUDING WITHOUT LIMITATION PRODUCTION RATES, DECLINE RATES AND RECOMPLETION OPPORTUNITIES; (iv) GAS BALANCING OR PAYOUT ACCOUNT INFORMATION, ALLOWABLES, OR OTHER REGULATORY MATTERS WITH RESPECT TO THE ASSETS, (v) THE PRESENT OR FUTURE VALUE OF THE ANTICIPATED INCOME, COSTS OR PROFITS, IF ANY, TO BE DERIVED FROM THE PROPERTY, (vi) THE ENVIRONMENTAL CONDITION OF THE PROPERTY AND ASSETS, (vii) ANY PROJECTIONS AS TO EVENTS THAT COULD OR COULD NOT OCCUR, AND (viii) ANY OTHER MATTERS CONTAINED IN OR OMITTED FROM ANY INFORMATION OR MATERIAL FURNISHED TO BUYER BY SELLER. ANY DATA, INFORMATION OR OTHER RECORDS FURNISHED BY SELLER ARE PROVIDED TO BUYER AS A CONVENIENCE AND BUYER'S RELIANCE ON OR USE OF THE SAME IS AT BUYER'S SOLE RISK. 4.4 Information in Exhibits. SELLER MAKES NO REPRESENTATION OR WARRANTY AS TO THE COMPLETENESS OR ACCURACY OF THE INFORMATION CONTAINED IN EXHIBIT A, SCHEDULE 2 (WELLS), EXHIBIT A, SCHEDULE 3 (PLATFORMS, PIPELINES, AND OTHER IMMOVABLES AND EQUIPMENT), EXHIBIT A, SCHEDULE 4 (EASEMENTS, SURFACE LEASES, AND PERMITS) OR EXHIBIT A, SCHEDULE 5 (RELATED CONTRACTS). 4.5 Subrogation of Warranties. To the extent transferable, SELLER will give and grant to BUYER, its successors and assigns full power and right of substitution and subrogation in and to all covenants and warranties (including warranties of title) by preceding owners, vendors, or others, given or made with respect to the Property or any part thereof prior to the Effective Date of this Agreement. 4.6 Disclaimers Deemed Conspicuous. To the extent required to be operative, BUYER here agrees that the disclaimers of warranties contained in this Agreement are conspicuous disclaimers for the purpose of any applicable law, rule or order. ARTICLE 5. DUE DILIGENCE REVIEW OF THE PROPERTY ------------------------------------ 5.1 Records Review and Confidentiality. To allow BUYER to confirm SELLER's and COI's title and conduct other due diligence with respect to the Property and Assets, SELLER shall give BUYER, and BUYER's authorized representatives, at mutually agreeable times before Closing, access to all contract, land and lease, and operational records, to the extent such data and records are in SELLER's or COI's possession and relate to the Property and Assets. With SELLER's permission, BUYER may photocopy such records at its sole expense. BUYER shall keep confidential all information made available to BUYER until the later of the Closing Date or the Effective Date. This Agreement and the terms and provisions thereof, including the Purchase Price, shall be maintained confidential by BUYER until Closing; provided however that this Agreement and the terms and provisions thereof may be disclosed to BUYER's lenders, if any, and their consultants, who shall be required to keep such information confidential. Any confidentiality agreement previously executed by SELLER and BUYER with respect to the Property will continue in force until the later of the Closing Date or the Effective Date, and for as long thereafter as provided in the confidentiality agreement. BUYER shall take all reasonable steps necessary to ensure that BUYER's authorized representatives comply with the provisions of this Section 5.1 and any confidentiality agreement in effect. 5.2 Physical Inspection. Before Closing, (i) with respect to that portion of the Property operated by SELLER, SELLER will permit BUYER and its representatives, at their sole risk and expense, to conduct reasonable inspections of the Property at times approved by SELLER, and (ii) with respect to that portion of the Property not operated by SELLER, SELLER will attempt to obtain access to the Property, in accordance with the applicable operating agreements, for BUYER and its representatives, at their sole risk and expense, to conduct reasonable inspections of the Property at times approved by the operator of the Property. BUYER shall repair any damage to the Property resulting from its inspection and shall indemnify, defend and hold SELLER harmless from and against any and all Claims arising from BUYER inspecting and observing the Property, including, without limitation, (i) Claims for personal injuries to or death of employees of the BUYER, its contractors, agents, consultants and representatives, and damage to the property of BUYER or others acting on behalf of BUYER, regardless of whether and including such Claims arising out of or resulting, in whole or part, from the condition of the Property or SELLER's (or its employees', agents', contractors', successors' or assigns') sole or concurrent negligence, strict liability or fault, and (ii) Claims for personal injuries to or death of employees of SELLER or third parties, and damage to the property of SELLER or third parties, to the extent caused by the negligence, gross negligence or willful misconduct of BUYER. 5.3 Environmental Assessment. 5.3.1 Inspection. Up to five (5) days prior to Closing, the BUYER will have the right, at its sole cost, to conduct a Phase I environmental assessment of the Property and Assets. However, the Phase I environmental assessment must be conducted by an agent or representative (the "Inspector") of BUYER acceptable to both SELLER and BUYER. For purposes of this Agreement, a Phase I environmental assessment means (i) a review of SELLER's and the government's environmental records, (ii) the submission of pre-inspection questionnaires to SELLER, (iii) a site visit to visually inspect the Property and Assets, and (iv) interviews with corporate and site personnel of SELLER. A Phase I environmental assessment does not include soil or groundwater sampling or subsurface testing of any kind. 5.3.2 Inspection Results. Each party will be entitled to receive a copy of Inspector's Phase I review of the Property and Assets, including all written reports, data and conclusions. BUYER agrees not to disclose the Phase I inspection results for the Property and Assets, or any SELLER information reviewed during the Phase I environmental assessment, to third parties without the agreement of SELLER, except as required by law or by the order of a court or regulatory agency. This confidentiality obligation shall be effective for five (5) years after the Closing Date and will survive the termination of this Agreement for any reason. 5.3.3 Notice of Adverse Environmental Conditions. Prior to Closing, BUYER will review the inspection results for the Property and Assets and determine based on those results if any Adverse Environmental Conditions exist with respect to the Property and Assets. No later than twenty (20) business days before Closing, BUYER will notify SELLER in writing of any Adverse Environmental Condition with respect to the Property and Assets. Such notice shall describe in reasonable detail the Adverse Environmental Condition, include all data and information in BUYER's and the Inspector's possession or control bearing thereon, and include the estimated Environmental Defect Value attributable thereto. The "Environmental Defect Value" attributable to any Adverse Environmental Condition will be the estimated amount of all reasonable costs and Claims, net to SELLER's and COI's interest in the Property and Assets, associated with the existence, remediation or correction of the Adverse Environmental Condition, as reasonably determined and estimated by the Inspector. The term "Adverse Environmental Condition" means and includes, with respect to any portion of the Property and Assets, (i) the failure of the Property and Assets to be in compliance with applicable Environmental Laws, (ii) the Property and Assets being subject to any agreements, consent orders, decrees, or judgments, in existence at this time based on any Environmental Laws that negatively impact the future use of any portion of the Property and Assets, or that require any change in the present conditions of any of the Property and Assets, or (iii) the Property and Assets being subject to any uncured notices of violations of or noncompliance with any applicable Environmental Laws; provided, however, that no matter shall be deemed to be or constitute an Adverse Environmental Condition unless the Environmental Defect Value attributable thereto exceeds $50,000, net to SELLER's or COI's interest in the Property and Assets. The term "Environmental Laws" means all laws, regulations, rules, codes, permits and orders relating to pollution or protection of the public health and the environment 5.3.4 Right and Remedies for Adverse Environmental Conditions. (i) With respect to any Adverse Environmental Condition affecting the Property or Assets, BUYER may (a) request SELLER to cure (or cause COI to cure) the environmental condition, but SELLER and COI will have no obligation to cure the Adverse Environmental Condition, or (b) request an adjustment in the Purchase Price equal to the estimated value of the Adverse Environmental Condition. If SELLER and BUYER are unable to agree no later than 15 business days before Closing on curative measures or an adjustment in the Purchase Price with respect to any such Adverse Environmental Condition, the parties will have the rights and remedies set forth in subpart (ii) of this Section 5.3.4. (ii) The rights and remedies of the parties with respect to Adverse Environmental Conditions on the Property and Assets on which the parties cannot agree on curative measures or a Purchase Price adjustment are as follows: (a) If the collective value of the Adverse Environmental Conditions is less than two percent (2%) of the Purchase Price, the parties will be obligated to proceed with Closing as to all of the Property without curative action by SELLER with respect to such Adverse Environmental Conditions and without an adjustment to the Purchase Price. (b) If the collective value of the Adverse Environmental Conditions equals or exceeds two percent (2%) of the Purchase Price, either SELLER or BUYER may exclude the Property (or SELLER will cause COI to exclude and transfer the affected Asset from the Assets prior to Closing if possible) affected by the Adverse Environmental Condition, in which case the Purchase Price will be reduced by the said collective value and the parties will be obligated to proceed with Closing, subject to the termination rights of the parties under Section 5.8 and subpart (c) of this Section 5.3.4. (c) If the collective value of the Adverse Environmental Conditions equals or exceeds twenty-five percent (25%) of the Purchase Price, either party may terminate this Agreement, and neither SELLER nor BUYER will have any further obligation to conclude the transfer of the Property under this Agreement. However, the right of termination under this subpart (c) must be exercised no later than 10 business days before Closing, after which both parties will be deemed to have waived their termination rights under this subpart (c) in connection with Adverse Environmental Conditions. (iii)Notwithstanding any agreement by SELLER to a attempt to cure an Adverse Environmental Condition or to reduce the Purchase Price due to an Adverse Environmental Condition with respect to the Property or COI's Assets, or any other provision of this Agreement, BUYER at Closing will assume (and COI will retain) all Environmental Obligations with respect to the Property (and Assets), as provided in Section 7.5. 5.3.5 Exclusive Remedies. The remedies set forth in this Section 5.3 are the sole and exclusive remedies of BUYER with respect to any Adverse Environmental Condition (and all Environmental Obligations arising out of any such Adverse Environmental Condition) attributable to SELLER's and COI's ownership or operation of the Property and Assets prior to the Effective Date that is known to BUYER or COI prior to Closing, regardless of whether BUYER notifies SELLER of any such Adverse Environmental Condition. SELLER shall have no liability to BUYER for any such Adverse Environmental Condition (or its related Environmental Obligations) known to BUYER or COI prior to Closing, if BUYER fails to notify SELLER as provided in Section 5.3.3. The indemnification obligations set forth in Section 8.4.2 are the sole and exclusive remedy of BUYER with respect to any Adverse Environmental Condition (and all Environmental Obligations arising out of any such Adverse Environmental Condition) attributable to SELLER's and COI's ownership or operation of the Property and Assets prior to the Effective date that becomes known to BUYER after Closing. 5.4 Government Approvals. 5.4.1 MMS and State Approvals. BUYER agrees promptly after Closing to take all actions required of it by the MMS, the Secretary of State of the state of Delaware, or any other regulatory agencies to obtain all requisite regulatory approvals with respect to this transaction, if required. 5.4.2 MMS and State Bonding Requirements. BUYER agrees to promptly purchase and post (or cause COI to procure and post) any and all bonds, supplemental bonds or other securities which may be required of it (or COI) pursuant to 30 CFRss.ss.250.7, 256.58, 256.59, and 256.61 in excess of any existing lease, pipeline or area-wide bond(s). Upon execution of this Agreement, BUYER shall confer with the MMS regarding the amounts and terms for the posting of any supplemental bonds or pledge of securities to be required pursuant to the provisions of 30 CFRss.ss.250.7 and 256.61. If the terms and amounts of any such supplemental bonds or arrangements for the pledge of securities required (or anticipated to be required) of BUYER or COI by the MMS do not fully cover all of SELLER's and COI's Plugging and Abandonment Obligations and other obligations being assumed under this Agreement by BUYER with respect to the Assets, then at Closing BUYER (or COI) shall also deliver to SELLER an additional plugging and abandonment bond with terms and in the form of Exhibit I or as mutually agreed by the parties. The amount of the additional bond to be delivered to SELLER at Closing under this Section 5.4 shall equal the difference between $ 6.5 million and the total amount of the bonds, supplemental bonds and/or pledge of securities made and in place with the MMS by COI or BUYER with respect to the Assets on the Closing Date. The additional bond to be given by BUYER to SELLER under this Section 5.4 must be issued by an insurance company, surety, or other financial institution approved by SELLER in its sole discretion and shall be executed on the form attached hereto as Exhibit I, or such other form mutually agreed to by the parties. BUYER shall maintain this additional bond in full force and effect, at BUYER's sole cost and expense, until the Property and Assets have been finally and permanently plugged, abandoned, and restored, all in accordance with governmental regulations. The face amount of the bond may be reduced by BUYER and its surety by the reasonable amounts spent by BUYER and COI in partial compliance with their Plugging and Abandonment Obligations under this Agreement, once SELLER has determined (in its sole discretion) that such operations have been satisfactorily completed and has provided written notice of same to BUYER and its surety. BUYER's or COI's intention not to renew, or its failure to maintain, the additional bond in force shall entitle SELLER to full payment of the face amount of the bond on demand. 5.4.3 Hart-Scott-Rodino. This Agreement is subject in all respects to and conditioned upon compliance by the parties with Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "Hart-Scott-Rodino Act"), and rules and regulations promulgated pursuant thereto, to the extent that said act, rules and regulations are applicable to the transaction contemplated by this Agreement. BUYER and SELLER agree to make such filings with and provide such information to the Federal Trade Commission and the Department of Justice with respect to the transaction contemplated by this Agreement as are required in connection with the Hart-Scott-Rodino Act sufficiently in advance of the Closing Date to permit the lapse of the initial waiting periods prescribed in connection with the Hart-Scott-Rodino Act before the Closing Date. 5.5 Preferential Rights and Consents to Assign. 5.5.1 Notices to Holders. (i) If any of the Property is subject to third party preferential purchase rights, rights of first refusal, or similar rights (collectively, "Preferential Rights"), or third party consents to assign, lessor's approvals or similar rights (collectively, "Consents"), SELLER shall use reasonable efforts to (a) notify the holders of the Preferential Rights and Consents that it intends to transfer the Property to BUYER, (b) provide them with any information about the transfer of the Property to which they are entitled, and (c) in the case of Consents, ask the holders of the Consents to consent to the assignment of the affected Property to BUYER. (ii) SELLER shall promptly notify BUYER whether (a) any Preferential Rights are exercised, waived or deemed waived, (b) any Consents are denied, or (c) the requisite time periods have elapsed without any Preferential Rights being exercised or Consents being received. SELLER will not be liable to BUYER if any Preferential Rights are exercised, or any Consents are denied, except as expressly provided in this Section 5.5. 5.5.2 Remedies Before Closing. If SELLER is unable before Closing to obtain the required Consents (other than Consents ordinarily obtained after closing and Consents on hydrocarbon sales, purchase, gathering, transportation, treating, marketing, exchange, processing and fractionating agreements, if necessary) and waivers of all Preferential Rights, then as the sole pre-Closing remedy for same: (i) SELLER and BUYER by agreement may proceed with Closing as to the Property affected by the unwaived Preferential Rights or unobtained Consents, subject to the further obligations of SELLER and BUYER set forth in Section 5.5.3 in the event that such Preferential Rights are validly exercised or such Consents are ultimately denied after Closing; or (ii) SELLER and BUYER will exclude the affected portion of the Property from the transaction under this Agreement, adjust the Purchase Price by the Allocated Value of the excluded Property, and proceed with Closing as to the rest of the Property. 5.5.3 Remedies After Closing. (i) Preferential Rights. After Closing, if (a) any holder of Preferential Rights alleges improper notice of sale or other defect in the notice, or (b) SELLER or BUYER discover, or any third party alleges, the existence of additional Preferential Rights, SELLER and BUYER will attempt to obtain waivers of those Preferential Rights. If SELLER and BUYER are unable to obtain waivers of such Preferential Rights, or the third party ultimately establishes and exercises its rights, and such exercise denies the Property to BUYER, then BUYER shall satisfy all such Preferential Rights obligations. BUYER shall be entitled to receive (and SELLER hereby assigns to BUYER all of SELLER's rights to) all proceeds received by SELLER in connection with the sale, due to an exercise of Preferential Rights, of any portion of the Property BUYER was to receive under this Agreement. BUYER's receipt of proceeds from the sale of the affected Property shall be BUYER's sole remedy if undiscovered or alleged Preferential Rights are established and exercised after Closing. (ii) Consents. After Closing, if SELLER or BUYER discover, or any third party alleges, the existence of additional Consents, SELLER and BUYER will attempt to obtain waivers of those Consents. If SELLER and BUYER are unable to obtain waivers of such Consents (other than Consents on hydrocarbon sales, purchase, gathering, transportation, treating, marketing, exchange, processing and fractionating agreements), and such unwaived Consents deny the affected Property to BUYER, then SELLER and BUYER will rescind the assignment of the affected Property under this Agreement, after which SELLER shall pay BUYER the Allocated Value of the affected Property, and BUYER shall immediately reassign the affected Property to the SELLER. Rescission of the assignment of the affected Property and receipt of the Allocated Value of the affected Property shall be BUYER's sole remedy if undiscovered or alleged Consents are established and denied after Closing. 5.6 Title Defects. 5.6.1 Definition of Title Defect. For the purposes of this Agreement, a "Title Defect" means any impairment, encumbrance, encroachment, irregularity, defect in, or dispute concerning SELLER's title to the Property or COI's title to the Assets, and that in the opinion of BUYER would: (i) Reduce, impair or prevent BUYER or COI from receiving payment from the purchasers of production from the Property or Assets; (ii) Reduce BUYER's or COI's net revenue interest in all or a portion of the Property or Assets; (iii)Increase BUYER's or COI's working interest in all or a portion of the Property or Assets without a corresponding increase in net revenue interest; or (iv) Restrict or extinguish BUYER's or COI's right to use the Property or Assets as owner, lessee, licensee or permittee, as applicable. Neither the environmental condition of the Property or Assets, any Pre-Sale Hydrocarbon Imbalances, nor any failure to obtain Consents to the transfer of Related Contracts will be considered a Title Defect under this Section 5.6. 5.6.2 Notice of Title Defects. BUYER will review title to the Property and Assets prior to Closing and notify SELLER in writing of any Title Defect it discovers as soon as reasonably practicable after its discovery, but in no event less than ten (10) business days before the Closing Date. BUYER will be deemed to have conclusively waived any Title Defect about which it fails to notify SELLER in writing at least ten (10) business days before the Closing Date. 5.6.3 Request to Cure Title Defects. If BUYER notifies SELLER of a Title Defect as provided in Section 5.6.2, BUYER may request SELLER to cure (or COI to cure) the Title Defect, but SELLER and COI will have no obligation to cure any Title Defect in the Property or Assets. If SELLER agrees to attempt to cure a Title Defect, SELLER must cure the Title Defect before Closing, unless the parties otherwise agree in writing. 5.6.4 Remedies for Uncured Title Defects. If BUYER notifies SELLER of any Title Defect as provided in Section 5.6.2, and SELLER and COI refuse or are unable to cure the Title Defect before Closing, then BUYER and SELLER will have the following rights and remedies with respect to the uncured Title Defect(s) in the Property or Assets, unless the parties otherwise agree in writing. (i) BUYER may waive the uncured Title Defect and proceed with Closing. (ii) If an uncured, unwaived Title Defect reduces the value of the Property by an amount less than two percent (2%) of the Allocated Value of that Property, SELLER and BUYER will be obligated to proceed with Closing as to all the Property without adjustment to the Purchase Price. (iii)If an uncured, unwaived Title Defect reduces the value of the Property by an amount equal to or more than two percent (2%) of the Allocated Value of that Property, either SELLER or BUYER may exclude the portion of the Property affected by the Title Defect from the transaction under this Agreement, in which case SELLER and BUYER will adjust the Purchase Price by the Allocated Value of the excluded Property, and proceed with Closing as to the rest of the Property. (iv) In addition to the rights and remedies set forth in subparts (i) through (iii) of this Section 5.6.4, SELLER and BUYER will have the termination rights set forth in Section 5.8. 5.6.5 Exclusive Remedy. The remedies set forth in this Section 5.6 are the exclusive remedies under this Agreement for all Title Defect matters, and SELLER shall have no other liability to BUYER with respect to Title Defects. 5.7 Casualty Losses and Government Takings. 5.7.1 Notice of Casualty Losses. If, prior to the Closing Date, all or part of the Property (or Assets) is damaged or destroyed by fire, flood, storm, hurricane, named tropical disturbance, or other casualty ("Casualty Loss"), or is taken in condemnation or under the right of eminent domain, or if proceedings for such purposes shall be pending or threatened ("Government Taking"), SELLER must promptly notify BUYER in writing of the nature and extent of the Casualty Loss or Government Taking and SELLER's estimate of the cost required to repair or replace that portion of the Property or Assets affected by the Casualty Loss or value of the Property or Assets taken by the Government Taking. 5.7.2 Remedies for Casualty Losses and Government Takings. With respect to each Casualty Loss to or Government Taking of the Property or Assets, SELLER and BUYER will have the following rights and remedies. (i) If the agreed cost to repair or replace the portion of the Property or Assets affected by the Casualty Loss or the agreed value of the Property taken in any Government Taking is less than $ 50 million, the Purchase Price will be adjusted by the agreed cost of the Casualty Loss or the agreed value of the Property or Assets taken by the Government Taking, and the parties will proceed with Closing. (ii) If the agreed cost to repair or replace the portion of the Property or Assets affected by the Casualty Loss or the agreed value of the Property or Assets taken in any Government Taking equals or exceeds $ 50 million, SELLER and BUYER by agreement may adjust the Purchase Price by the agreed cost of the Casualty Loss or the agreed value of the Property or Assets taken in any Government Taking, and proceed with Closing. (iii)In addition to the remedies set forth in subparts (i) and (ii) of this Section 5.7.2, SELLER and BUYER will have the termination rights in connection with Casualty Losses and Government Takings set forth in Section 5.8. 5.7.3 Insurance Proceeds and Settlement Payments. If SELLER and BUYER adjust the Purchase Price of the Property due to a Casualty Loss or Government Taking, and proceed with Closing, SELLER will be entitled to retain (or cause COI to pay over to SELLER) (i) all insurance proceeds payable to SELLER or COI with respect to any such Casualty Loss, (ii) all sums paid to SELLER or COI by third parties by reason of any such Casualty Loss, and (iii) all compensation paid to SELLER or COI with respect to any such Government Taking. 5.7.4 Change in Condition. BUYER will assume all risk and loss with respect to any change, between the Effective Date and the Closing Date, in the condition of the Property or Assets resulting from production of Hydrocarbons through normal depletion (including the watering-out, casing collapse, or sand infiltration of any well) and the depreciation of personal property through ordinary wear and tear. None of the events or conditions set forth in this Section 5.7.4 will be considered a Casualty Loss with respect to the Property or Assets, nor will they be cause for any other reduction in the Purchase Price, or give rise to any right to terminate this Agreement. 5.8 Termination Due to Impairments to the Property. 5.8.1 Right to Terminate. (i) If, on the Closing Date, the Allocated Value of all Property to be excluded from the transaction contemplated by this Agreement due to unwaived, uncured Title Defects or Adverse Environmental Conditions on the Property or Assets exceeds twenty-five percent (25%) of the total Allocated Value of all of the Property, either SELLER or BUYER may terminate this Agreement, and neither SELLER nor BUYER will have any further obligation to conclude the transfer of the Property under this Agreement. (ii) If, on or before the Closing Date, a Casualty Loss or Government Taking has occurred with respect to the Property or COI's Assets, and (a) SELLER and BUYER have been unable to agree on the cost of the Casualty Loss or the value of the Property or Assets taken in any Government Taking, or (b) the agreed cost to repair or replace the portion of the Property or Assets affected by the Casualty Loss or the agreed value of the Property taken in any Government Taking equals or exceeds $ 50 million, then either SELLER or BUYER may terminate this Agreement, and neither SELLER nor BUYER will have any further obligation to conclude the transfer of the Property under this Agreement. 5.8.2 Notice of Termination. Any party exercising a right of termination under this Section 5.8 must notify the other party in writing no later than three (3) business days before the Closing Date of its election to terminate this Agreement. ARTICLE 6. CLOSING AND POST-CLOSING OBLIGATIONS 6.1 Closing Date. The actions and events described in Section 6.3 are the "Closing" of this transaction, which shall be held beginning at 9:00 a.m. local time at SELLER's offices located at 600 North Dairy Ashford, Houston, Texas 77079 on December 31, 2001, or on such earlier or later date or at such other place as the parties agree in writing ("Closing Date"). Time is of the essence in the performance of this Agreement. All events of Closing shall each be deemed to have occurred simultaneously with the other, regardless of when actually occurring, and each shall be a condition precedent to the other. If the Closing occurs, all conditions of Closing shall be deemed to have been satisfied or waived (but SELLER's and BUYER's warranties and representations shall not be waived and shall survive the Closing, to the extent provided in Section 11.5). 6.2 Conditions to Closing. SELLER and BUYER will not be obligated to close the transaction described in this Agreement, and will have the right to terminate this Agreement, unless each of the conditions to its performance set forth in this Section 6.2 is satisfied as of the Closing Date, or it waives in whole or part any such condition to its performance that is unsatisfied as of the Closing Date. If a party elects to terminate this Agreement because a condition to its performance is not satisfied, the terminating party must give the other party written notice of termination on or before the Closing Date, after which neither SELLER nor BUYER will have any further obligation to conclude the transfer of the Property under this Agreement. The inclusion in this Agreement of conditions to SELLER's and BUYER's obligations at Closing shall not, in and of itself, constitute a covenant of either SELLER or BUYER to satisfy the conditions to the other party's obligations at Closing. 6.2.1 Representations and Warranties. (i) SELLER will not be obligated to close if, as of the Closing Date, any matter represented or warranted in this Agreement by the BUYER is untrue, inaccurate or is misleading in any material respect and has a material adverse effect on the value, use or operation of the Property. (ii) BUYER will not be obligated to close if, as of the Closing Date, any matter represented or warranted in this Agreement by the SELLER is untrue, inaccurate or is misleading in any material respect and has a material adverse effect on the value, use or operation of the Property. 6.2.2 Performance of Obligations. (i) SELLER will not be obligated to close if, as of the Closing Date, BUYER has not performed all material obligations under this Agreement that BUYER is required to perform on or before Closing. (ii) BUYER will not be obligated to close if, as of the Closing Date, SELLER has not performed all material obligations under this Agreement that SELLER is required to perform on or before Closing. 6.2.3 Legal Proceedings. Neither SELLER nor BUYER will be obligated to close if, as of the Closing Date, any suit or other proceeding is pending or threatened before any court or governmental agency seeking to restrain, prohibit, or declare illegal, or seeking substantial damages in connection with, the transaction that is the subject of this Agreement, and/or there is reasonable basis for any such suit or other proceeding. 6.2.4 FTC Consent. Neither SELLER nor BUYER will be obligated to close if, as of the Closing Date, any necessary consent of the Federal Trade Commission and any other state or federal governmental authority or agency relating to the consummation of the transaction contemplated by this Agreement (except for approvals covered by Section 5.4) has not been obtained or waived, or applicable waiting periods prescribed by the Hart-Scott-Rodino Act have not elapsed or terminated. 6.2.5 BUYER's Insurance. SELLER will not be obligated to close if BUYER, as of the Closing Date, does not have insurance providing the following minimum insurance coverages with limits of liability of not less than those set out below: (i) Insurance which shall comply with all applicable Workers' Compensation and Occupational Disease Laws and which shall cover all of the BUYER's employees performing any work or activities as to the Property. BUYER shall carry insurance for all work performed offshore, including insurance to cover Claims under the United States Longshoremen's and Harbor Workers' Act extended to include the Outer Continental Shelf; (ii) Comprehensive/Commercial General Liability Insurance (including contractual liability coverage) with a combined bodily injury and property damage limit of not less than $5,000,000 for each occurrence, together with Pollution Liability Insurance with a coverage of not less than $5,000,000 for each occurrence. Such insurance shall include coverage for all liability assumed by BUYER under the terms of this Agreement with limits not less than those set out above. As to all comprehensive/commercial general public and pollution liability insurance policies, SELLER shall be named as an additional insured to the extent of BUYER's liabilities and obligations hereunder. All such insurance of BUYER hereunder shall be written on policy forms and by insurance companies approved by SELLER. BUYER shall furnish SELLER with certificates of insurance on forms approved by SELLER, listing all such insurance policies. All such certificates must be signed by authorized representatives of the insurance companies and must provide for not less than ten (10) days prior written notice to SELLER in the event of cancellation or material change affecting SELLER's interest. BUYER shall ensure that it and its contractors' insurers waive all rights of recovery or subrogation against SELLER, its parent, subsidiaries, affiliates, agents, directors, officers, employees, servants, co-lessees or co-venturers. Neither failure to comply, nor full compliance with the insurance provisions of this Agreement, shall limit or relieve BUYER from its indemnity obligations in accordance with this Agreement. 6.2.6 SELLER's Corporate Approvals. SELLER will not be obligated to close if, as of the close of business October 10, 2001, final corporate approval by the appropriate levels of its and BUYER's management and board of directors has not been obtained. Such approval is not assured, and if any requisite level of such management and corporate approval is not forthcoming for any reason whatsoever, SELLER shall not be obligated to seek other such approvals. SELLER shall notify BUYER in writing by close of business October 12, 2001, whether such approval has been obtained. 6.2.7 BUYER's Corporate Approvals. BUYER will not be obligated to close if, as of the close of business October 10, 2001, final corporate approval by the appropriate levels of its and SELLER's management and board of directors has not been obtained. Such approval is not assured, and if any requisite level of such management and corporate approval is not forthcoming for any reason whatsoever, BUYER shall not be obligated to seek other such approvals. BUYER shall notify SELLER in writing by close of business October 12, 2001, whether such approval has been obtained. 6.2.8 One Closing. SELLER will not be obligated to close if BUYER has made an election under this Agreement or some other event has occurred that will prevent SELLER from Closing on, or will cause SELLER to be unable to close and convey, all of the Property at one Closing and to receive at such Closing the entire Purchase Price, adjusted as provided in Section 2.2, and to be paid pursuant to Section 6.3. 6.2.9 Concurrent Closing. Neither SELLER nor BUYER will be obligated to close if the closing of that certain Purchase and Sale Agreement between them of even date herewith is not closed concurrently with the Closing of this Agreement. 6.2.10 BUYER's Financial Information and Condition. SELLER will not be obligated to close if (i) BUYER has not provided SELLER, at least ten (10) business days in advance of Closing, copies of BUYER's audited financial statements and any other financial information reasonably requested by SELLER, (ii) such information is not materially true and correct in all respects, or (iii) any material adverse change in the financial condition of BUYER has occurred between the Effective Date and the Closing Date. 6.3 Closing. At Closing, the following events shall occur, and SELLER and BUYER shall execute, acknowledge (if necessary), and exchange, as applicable, the following items: (i) Both parties at Closing shall execute a Closing Statement evidencing the amounts to be wire transferred into the accounts of each receiving party at Closing. (ii) BUYER shall deliver to SELLER the Purchase Price, as adjusted by the amount shown on the Preliminary Settlement Statement, by wire transfer in immediately available funds to the account of SELLER designated in writing by SELLER prior to Closing. (iii)If SELLER elects to return the Performance Deposit as provided in Section 2.1.2, SELLER shall deliver to BUYER the Performance Deposit without interest, by wire transfer in immediately available funds to the account of BUYER designated in writing by BUYER prior to Closing. (iv) Conoco will deliver share certificate No. 3 with a Stock Power in the form of Exhibit D, Schedule 1, representing the Purchased Shares either endorsed in favor of the BUYER or accompanied by duly executed instruments of transfer, and any other documents necessary to transfer to BUYER good, marketable, unencumbered title to the Purchased Shares. (v) Conoco will secure and deliver the resignations of all officers and members of the board of directors of COI who are affiliated with or employed by Conoco effective as of the Closing Date. (vi) COPL shall execute and deliver to BUYER the assignment documents (in sufficient counterparts for recording) for the assignment and conveyance of the Downstream Pipeline to be transferred under this Agreement in the form set forth in Exhibit D, Schedule 2 (the "Assignment Documents"); (vii)COPL and BUYER shall execute and deliver the Assignment of Contracts in the form of Exhibit E for the Related Contracts relative to the Downstream Pipeline, together with any other ratification and joinder instruments required to transfer the rights, obligations and interests in applicable Related Contracts; (viii) SELLER shall execute the Nonforeign Affidavits in the forms of Exhibit F; (ix) SELLER and BUYER shall execute, acknowledge (if necessary) and exchange, as applicable, any applications necessary to transfer to BUYER all transferable governmental or regulatory permits to which the Property is subject, and which SELLER has agreed to transfer under this Agreement. (x) BUYER shall furnish SELLER with evidence acceptable to SELLER that BUYER is qualified (and that COI will continue to be qualified) to hold title to the Leases and other Property with the MMS and state of Louisiana, as applicable, and to operate (should BUYER become the operator of the Property or a portion thereof) the platforms, wells, pipelines and facilities associated therewith, including copies of all BUYER's ownership, operational, and plugging bonds or other supplemental security arrangements for the Property, as provided in Section 5.4. (xi) BUYER shall furnish SELLER with Certificate(s) of Insurance confirming the existence of the BUYER's insurance coverages pursuant to Section 6.2.5. (xii)BUYER shall furnish SELLER with a certified resolution or secretary's certificate of BUYER evidencing the authority of BUYER to enter into this Agreement and close the transaction contemplated hereby in a form and having content satisfactory to SELLER. (xiii) BUYER (COI, if necessary), SELLER, and BUYER's (COI's) surety will execute and deliver the additional bond provided in Section 5.4.2. (xiv)SELLER will cause COI to close all of its bank accounts and transfer (by dividend or otherwise) all of its funds to SELLER, and will also declare and pay dividends (whether one or more) to SELLER sufficient to reduce its working capital and retained earnings to zero at Closing (these actions may be taken prior to Closing and evidence of same provided to BUYER at Closing). BUYER will arrange for any necessary bank accounts for COI on or after Closing. (xv) The Management and Administrative Services Agreement between SELLER and COI dated December 30, 1993, and any outstanding guarantees in favor of COI, will be terminated. (xiv)The parties shall execute and deliver other appropriate assignments, bills of sale, deeds or instruments necessary to transfer the Property to BUYER or to effect and support this transaction contemplated in this Agreement, including any conveyances on official forms and related documentation necessary to transfer the Property to BUYER in accordance with requirements of governmental regulations. (xv) The original minute books of COI will be delivered to BUYER. (xvi)SELLER and COI will execute the agreement provided in Section 11.1 (Preferential Right to Purchase and Process Production). 6.4 Post-Closing Obligations. SELLER and BUYER have the following post-closing obligations: 6.4.1 Asset Records. Within sixty (60) days after Closing, SELLER shall deliver to BUYER the originals or legible copies of the Asset Records, at a location designated by BUYER. Any transportation, postage or delivery costs from SELLER's offices shall be at BUYER's sole cost, risk and expense. If SELLER retains any original Asset Records, BUYER shall have the right to access and review those original Asset Records during normal business hours. BUYER agrees to maintain the Asset Records for seven (7) years after Closing. BUYER shall provide SELLER and its representatives reasonable access to and the right to copy such Asset Records for the purposes of (i) preparing and delivering any accounting provided under this Agreement and adjusting, prorating and settling the charges and credits provided in this Agreement; (ii) complying with any law, rule or regulation affecting SELLER's interest in the Property prior to the Closing Date; (iii) preparing any audit of the books and records of any third party relating to SELLER's interest in the Property prior to the Closing Date, or responding to any audit prepared by such third parties; (iv) preparing tax returns; (v) responding to or disputing any tax audit; or (vi) asserting, defending or otherwise dealing with any claim or dispute under this Agreement. BUYER shall notify SELLER in writing before destroying any Asset Records. SELLER agrees to use all reasonable efforts, but without any obligation to incur any cost or expense in connection therewith, to cooperate with BUYER's efforts to obtain access to files, records and data relating to the Property not provided by SELLER which are in the possession of any third party operator of any of the Property. 6.4.2 Recording and Filing. BUYER, within thirty (30) days after Closing, shall (i) record all Assignment Documents and all other instruments that must be recorded to effectuate the transfer of the Property; and (ii) file for approval with the applicable government agencies all Assignment Documents and other state and federal transfer documents required to effectuate the transfer of the Property. BUYER shall provide SELLER a recorded copy of each Assignment Document and other recorded instruments, and approved copies of the Assignment Documents and other state and federal transfer documents as soon as they are available. 6.4.3 Further Assurances. BUYER and SELLER agree to execute and deliver from time to time such further instruments and do such other acts as may be reasonably requested and necessary to effectuate the purposes of this Agreement. ARTICLE 7. ASSUMED AND RETAINED RIGHTS AND OBLIGATIONS ------------------------------------------- 7.1 BUYER's Rights After Closing. Upon and after Closing, BUYER will receive and assume all of SELLER's right, title and interest in the Property, with effect as of the Effective Date. 7.2 BUYER's Obligations After Closing. 7.2.1 Description of Obligations. Upon and after Closing, BUYER will guarantee, assume, pay and perform all the obligations, liabilities and duties with respect to the ownership and (if applicable) operation of the Property (and COI's ownership of the Assets) that are attributable to periods on and after the Effective Date (the "BUYER's Assumed Obligations"). The BUYER's Assumed Obligations include: (i) Responsibility for payment of all operating expenses and capital expenditures related to the Property and Assets and attributable to the period on and after the Effective Date; (ii) Responsibility for performance (including by COI) of all express and implied obligations and covenants under the terms of the Leases, other instruments of record in the chain of title, the Related Contracts and all other orders and contracts to which the Assets or the operation thereof is subject arising on and after the Effective Date; (iii)Responsibility for payment by COI of all royalties, overriding royalties, production payments, net profits obligations, rentals, shut-in payments and other burdens or encumbrances to which the Assets are subject that are attributable to periods on and after the Effective Date; (iv) Responsibility for proper accounting for and disbursement of production proceeds from the Assets attributable to periods on and after the Effective Date, including funds in any suspense accounts received from SELLER; (v) Responsibility for compliance with all applicable laws, ordinances, rules and regulations pertaining to the Property (and Assets by COI), and the procurement and maintenance of all permits required by public authorities in connection with the Property (and Assets by COI) on and after the Effective Date; (vi) The Plugging and Abandonment Obligations, the Environmental Obligations, and all other obligations assumed by BUYER under this Agreement; and (vii)Responsibility for all obligations related to the Post-Sale Hydrocarbon Imbalances. 7.2.2 Non-Operator's Obligations. With respect to (i) any part of the Property and Assets for which BUYER or COI is not duly elected operator, or (ii) any non-operating interests in the Property or Assets, BUYER shall assume full responsibility and liability for BUYER's Assumed Obligations with respect to such non-operating interests. 7.3 SELLER's Obligations After Closing. 7.3.1 Description of Obligations. After Closing, SELLER will retain and guarantee responsibility for all liabilities, obligations and duties with respect to the ownership and (if applicable) operation of the Property (and COI's ownership of the Assets) that are attributable to periods before the Effective Date, except as otherwise specifically provided in this Agreement (the "SELLER's Retained Obligations"). The SELLER's Retained Obligations include: (i) Responsibility for the payment of all operating expenses and capital expenditures related to the Property and Assets and attributable to the period prior to the Effective Date; (ii) Responsibility for performance (including by COI) of all express and implied obligations and covenants under the terms of the Leases, other instruments in the chain of title, the Related Contracts and all other orders and contracts to which the Assets are subject arising before the Effective Date; (iii)Responsibility for payment by COI of all royalties, overriding royalties, production payments, net profits obligations, rentals, shut-in payments and other burdens or encumbrances to which the Assets are subject that are attributable to periods before the Effective Date; (iv) Responsibility for proper accounting for and disbursement of production proceeds from the Assets attributable to periods before the Effective Date; (v) Responsibility for the exclusions from the Plugging and Abandonment Obligations described in Section 7.4.2, and the exclusions from the Environmental Obligations described in Section 7.5.2; and (vi) Responsibility for all obligations related to the Pre-Sale Hydrocarbon Imbalances. 7.3.2 Non-Operator's Obligations. With respect to (i) any periods of time before the Effective Date during which SELLER or COI was not operator of the Property or Assets, or (ii) any non-operating interests in the Property or Assets, SELLER retains full responsibility and liability for SELLER's Retained Obligations with respect to such non-operating interests. 7.4 Plugging and Abandonment Obligations. 7.4.1 BUYER's Obligations. Upon and after Closing, BUYER guarantees and assumes full responsibility and liability for the following plugging and abandonment obligations (and COI's obligations) related to the Property and Assets (the "Plugging and Abandonment Obligations"), regardless of whether they are attributable to the ownership or operation of the Property op Assets before or after the Effective Date: (i) The necessary and proper plugging, replugging and abandonment of all wells on the Property and Assets, whether plugged and abandoned before or after the Effective Date; (ii) The necessary and proper removal, abandonment, and disposal of all platforms, structures, pipelines, equipment, abandoned property and junk located on or comprising part of the Property and Assets, including junk on the sea floor at the Leases; (iii)The necessary and proper capping and burying of all flow lines associated with the Wells and located on or comprising part of the Assets; (iv) The necessary and proper restoration of the Property and Assets, both surface, sea floor, and subsurface, as may be required by applicable laws, regulation or contract; (v) Any necessary clean-up or disposal of Property and Assets contaminated by naturally occurring radioactive material ("NORM"), as may be required by applicable laws, regulations or contract; (vi) All obligations arising from contractual requirements and demands made by courts, authorized regulatory bodies or parties claiming a vested interest in the Property and Assets; and (vii)Obtaining and maintaining all bonds, or supplemental or additional bonds, that may be required contractually or by governmental authorities. 7.4.2 Exclusions from BUYER's Obligations. BUYER's obligations under this Section 7.4 do not include any civil or criminal fines or penalties that may be levied against SELLER, COI or BUYER by any court or regulatory authority for non-compliance with applicable laws, regulations or orders in connection with the ownership or operation of the Property or Assets before the Effective Date. 7.4.3 Standard of Operations. BUYER shall conduct (and shall ensure that COI conducts) all plugging, replugging, abandonment, removal, disposal and restoration operations in a good and workmanlike manner and in compliance with all applicable laws and regulations. 7.4.4 Non-Operator's Obligations. With respect to any non-operating interests in the Property and Assets, BUYER shall guarantee and assume full responsibility and liability, from and after the Effective Date, for the Plugging and Abandonment Obligations with respect to such non-operating interests. 7.4.5 SELLER's Remedies. BUYER's liability and obligations under this Section 7.4 are included in the liabilities and obligations to be secured by the bonds, supplemental or additional bonds and/or pledge of securities, as may be established pursuant to Section 5.4. If BUYER defaults in the performance of its obligations pursuant to this Section 7.4, SELLER, at its option, and after reasonable notice, may complete, or have completed, the plugging, replugging, abandonment, removal, disposal, capping, burying, and restoration operations at BUYER's expense. Exercise of SELLER's rights hereunder shall in no way limit SELLER's rights to seek recovery for any uncompensated damages resulting from such default or to exercise any other legal rights and remedies under this Agreement. 7.5 Environmental Obligations. 7.5.1 BUYER's Obligations. Except as provided in Section 7.5.2, upon and after Closing, BUYER assumes full responsibility and liability for the following occurrences, events and activities on or related to the Property and Assets (the "Environmental Obligations"), regardless of whether arising from the ownership or operation of the Property (or COI's ownership or operation of the Assets) before or after the Effective Date, and regardless of whether resulting from any acts or omissions of SELLER or COI or the condition of the Property when acquired (or the condition of the Assets when COI was acquired by BUYER): (i) Environmental pollution or contamination, including pollution or contamination of the soil, sea, groundwater or air by oil, gas, condensate, distillate, other hydrocarbons, brine, NORM or otherwise; (ii) Underground injection activities and waste disposal onsite; (iii)Clean-up responses, and the cost of remediation, control, assessment or compliance with respect to surface, sea floor, and subsurface pollution caused by spills, pits, ponds or lagoons; (iv) Failure to comply with applicable land use, surface disturbance, licensing or notification requirements; (v) Disposal on the Property or Assets of any hazardous substances, wastes, materials and products generated by or used in connection with the ownership or operation of the Property or Assets before or after the Effective Date; and (vi) Non-compliance with environmental or land use rules, regulations, demands or orders of appropriate state or federal regulatory agencies. 7.5.2 Exclusions from BUYER's Obligations. BUYER's Environmental Obligations do not include: (i) Any civil or criminal fines or penalties that may be levied against SELLER or COI by any court or regulatory authority for any such violation of any laws, rules or regulations in connection with the ownership or operation of the Property (or the ownership or operation of the Assets by COI) before the Effective Date, all of which shall remain the responsibility of SELLER (and to be guaranteed by SELLER); and (ii) Disposal offsite from the Property or Assets before the Effective Date of any hazardous substances, wastes, NORM, materials and products generated by or used in connection with the ownership or operation of the Property (or the ownership or operation of the Assets by COI) before the Effective Date. 7.5.3 Non-Operator's Obligations. With respect to any non-operating interests in the Property being transferred to BUYER under this Agreement (and any non-operating interests of COI in the Assets), BUYER agrees to guarantee and assume full responsibility and liability, from and after the Effective Date, for the Environmental Obligations with respect to such non-operating interests. ARTICLE 8. INDEMNITIES ----------- 8.1 Definition of Claims. As used in this Agreement, the term "Claims" means any and all losses, liabilities, damages, punitive damages, obligations, expenses, fines, penalties, costs, claims, causes of action and judgments for: (i) breaches of contract; (ii) loss or damage to property, injury to or death of persons, and other tortious injury; and (iii) violations of applicable laws, rules, regulations, orders or any other legal right or duty actionable at law or equity. The term "Claims" also includes reasonable attorneys fees, court costs, and other reasonable costs of litigation resulting from the defense of any claim or cause of action within the scope of the indemnities in this Agreement. 8.2 Application of Indemnities. 8.2.1 Covered Claims and Parties. All indemnities set forth in this Agreement extend to the officers, directors, employees and affiliates of the party indemnified. Unless this Agreement expressly provides to the contrary, the indemnities set forth in this Agreement apply regardless of whether the indemnified party (or its employees, agents, contractors, successors or assigns) causes, in whole or part, an indemnified Claim, including indemnified Claims arising out of or resulting, in whole or part, from the condition of the Property or the indemnified party's (or its employees', agents', contractors', successors' or assigns') sole or concurrent negligence, strict liability or fault. However, the indemnities set forth in this Agreement do not extend to any part of an indemnified Claim that (i) is the result of the gross negligence, willful misconduct or fraud of the indemnified party, (ii) is the result of the imposition of punitive damages on the indemnified party arising from the acts of the indemnified party, or (iii) is the result of the imposition of civil or criminal fines or penalties by any court or regulatory authority on the indemnified party due the indemnified party's failure to comply with applicable laws, regulations or orders. 8.2.2 Other Limitations. The indemnities of the indemnifying party in this Agreement do not cover or include any amounts that the indemnified party may legally recoup from other third party owners under applicable joint operating agreements or other agreements, or for which the indemnified party is reimbursed by any third party. The indemnities in this Agreement do not relieve the parties to this Agreement from any obligations to third parties. The indemnities of the parties in this Agreement do not relieve the indemnified party from, or extend to cover, any obligations of the indemnified party under the terms of any operating agreement or other cost-sharing arrangement which is applicable to any Claim. There will be no upward or downward adjustment in the Purchase Price as a result of any matter for which BUYER or SELLER is indemnified under this Agreement. 8.3 BUYER's Indemnity. BUYER shall indemnify, defend and hold SELLER harmless from and against any and all Claims caused by, resulting from or incidental to: 8.3.1 BUYER's Assumed Obligations, including the Plugging and Abandonment Obligations, the Environmental Obligations (except as provided in Section 8.4), and the Post-Sale Hydrocarbon Imbalances; 8.3.2 Any obligations for brokerage or finder's fee or commission incurred by BUYER in connection with its purchase of the Property; 8.3.3 Any violation by BUYER of state or federal securities laws, or BUYER's dealings (including any dealings in breach of BUYER's warranties and representations in Section 3.3.3) with its partners, investors, financial institutions, assignees and other third parties in connection with the transaction under this Agreement, or any subsequent sale or other disposition of the Property (or portion thereof) by BUYER, its affiliates or assignees; 8.3.4 BUYER's ownership or operation of any portion of the Property reconveyed or reassigned to SELLER pursuant to Section 5.5.3 (ii) due to failure to obtain requisite Consents or government approvals, except to the extent any such Claim is the direct result of SELLER's ownership or operation of the Property before the Effective Date; and 8.3.5 BUYER's inspection of the Property and Assets under Section 5.2 and any other provisions of this Agreement, to the extent provided in Section 5.2. 8.4 SELLER's Indemnity. Subject to Section 8.6, SELLER shall indemnify, defend and hold BUYER harmless from and against any and all Claims caused by, resulting from or incidental to: 8.4.1 SELLER's Retained Obligations, including the exclusions from the Plugging and Abandonment Obligations, the exclusions from the Environmental Obligations assumed by BUYER in the BUYER's Assumed Obligations, and the Pre-Sale Hydrocarbon Imbalances; 8.4.2 Claims against BUYER by third parties (and third parties only, including governmental agencies) of which BUYER notifies SELLER in writing within one (1) year after Closing, to the extent those Claims result from Environmental Obligations that arise from SELLER's and COI's ownership or operation of the Property and Assets prior to the Effective Date, but SELLER shall have no obligation to BUYER under this Section 8.4 for any such Claim of which SELLER is not notified in writing by BUYER within one (1) year after Closing. 8.4.3 Any ownership, operations or activities of COI in or associated with the state of Alaska. 8.5 Notices and Defense of Indemnified Claims. Each party shall immediately notify the other party of any Claim of which it becomes aware and for which it is entitled to indemnification from the other party under this Agreement. The indemnifying party shall be obligated to defend at the indemnifying party's sole expense any litigation or other administrative or adversarial proceeding against the indemnified party relating to any Claim for which the indemnifying party has agreed to indemnify and hold the indemnified party harmless under this Agreement. However, the indemnified party shall have the right to participate with the indemnifying party in the defense of any such Claim at its own expense. 8.6 SELLER's Indemnity Limit. Notwithstanding anything herein to the contrary, (i) in no event shall SELLER be required to indemnify BUYER for any Claim or pay any other amount in connection with or with respect to the transactions contemplated in this Agreement in any amount exceeding in the aggregate twenty-five percent (25 %) of the Purchase Price as adjusted pursuant to Section 2.2 and (ii) in no event shall SELLER be required to indemnify BUYER for any Claim covered by SELLER's indemnity under Section 8.4, if SELLER does not receive written notice of the Claim as provided in Section 8.5 within one (1) year after the Closing Date; provided, however, the indemnity provided in Section 8.4.3 shall be unlimited as to time and amount. 8.7 NORM. BUYER ACKNOWLEDGES THAT IT HAS BEEN INFORMED THAT OIL AND GAS PRODUCING FORMATIONS CAN CONTAIN NATURALLY OCCURRING RADIOACTIVE MATERIAL. SCALE FORMATION OR SLUDGE DEPOSITS CAN CONCENTRATE LOW LEVELS OF NORM ON EQUIPMENT, MATERIALS AND OTHER PROPERTY. SOME OR ALL OF THE EQUIPMENT, MATERIALS AND OTHER PROPERTY SUBJECT TO THIS AGREEMENT MAY HAVE LEVELS OF NORM ABOVE BACKGROUND LEVELS. A HEALTH HAZARD MAY EXIST IN CONNECTION WITH THIS EQUIPMENT, MATERIALS AND OTHER PROPERTY BY REASON THEREOF. THEREFORE, BUYER MAY NEED TO FOLLOW SAFETY PROCEDURES WHEN HANDLING THIS EQUIPMENT, MATERIALS AND OTHER PROPERTY. 8.8 Pending Litigation and Claims. Notwithstanding anything in this Agreement to the contrary, BUYER shall indemnify, defend and hold SELLER harmless from and against any Claims resulting from the litigation and claims listed on Exhibit C under the section entitled "BUYER's Responsibility," except as may otherwise be expressly provided in that Exhibit. SELLER shall indemnify, defend and hold BUYER harmless from and against any Claims resulting from the litigation and claims listed on Exhibit C under the section entitled "SELLER's Responsibility," except as may otherwise be expressly provided in that Exhibit. Furthermore, if BUYER is a party in any of the litigation listed on Exhibit C against SELLER, BUYER shall release SELLER from its Claims and dismiss such litigation with prejudice. These matters shall not constitute an Adverse Environmental Condition or a Title Defect. 8.9 Waiver of Consequential and Punitive Damages; Data Room Matters. NEITHER BUYER NOR SELLER SHALL BE ENTITLED TO RECOVER FROM THE OTHER, RESPECTIVELY, AND EACH PARTY RELEASES THE OTHER PARTY FROM, ANY LOSSES, COSTS, EXPENSES, OR DAMAGES ARISING UNDER THIS AGREEMENT OR IN CONNECTION WITH OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT ANY AMOUNT IN EXCESS OF THE ACTUAL COMPENSATORY DAMAGES SUFFERED BY SUCH PARTY. BUYER AND SELLER BOTH WAIVE, AND RELEASE THE OTHER FROM, ANY RIGHT TO RECOVER PUNITIVE, SPECIAL, EXEMPLARY AND CONSEQUENTIAL DAMAGES ARISING IN CONNECTION WITH OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT; PROVIDED, HOWEVER, ANY SUCH DAMAGES RECOVERED BY A THIRD PARTY (OTHER THAN SUBSIDIARIES, AFFILIATES OR PARENTS OF A PARTY) FOR WHICH A PARTY OWES THE OTHER PARTY AN INDEMNITY UNDER THIS ARTICLE 8 SHALL NOT BE WAIVED. BUYER hereby fully and unconditionally releases SELLER and their affiliates and subsidiaries and their officer, directors and employees, from any and all Claims, causes of action or damages, if any, arising in favor of BUYER from SELLER's data room process and proposal procedures in connection with its sale of the Property. ARTICLE 9. TAXES AND EXPENSES ------------------ 9.1 Recording Expenses. BUYER shall pay all costs of recording and filing the Assignment Documents for the Property, all other state and federal transfer documents, and any other instruments that must be filed to effectuate the transfer of the Property. 9.2 Ad Valorem, Real Property and Personal Property Taxes. All Ad Valorem Taxes, Real Property Taxes, Personal Property Taxes, and similar obligations ("Property Taxes") on the Property are SELLER's obligation for periods before the Effective Date and BUYER's obligation for periods after the Effective Date. If Property Taxes for the current tax year have not been assessed and paid as of the Closing Date, the BUYER shall file all required reports and returns incident to the Property Taxes and pay the Property Taxes for the current tax year and subsequent periods. The SELLER will reimburse the BUYER promptly for the SELLER's proportionate share of these taxes, prorated as of the Effective Date, upon receipt of evidence of the BUYER's payment of the taxes. If Property Taxes for the current tax year have been assessed and paid as of the Closing Date, the BUYER will reimburse the SELLER for its proportionate share of these taxes, prorated as of the Effective Date, as a closing adjustment to the Purchase Price, as provided in Section 2.2. 9.3 Severance Taxes. SELLER shall bear and pay all severance or other taxes measured by Hydrocarbon production from the Property, or the receipt of proceeds therefrom, to the extent attributable to production from the Property before the Effective Date. BUYER shall bear and pay all such taxes on production from the Property on and after the Effective Date. SELLER shall withhold and pay on behalf of BUYER all such taxes on production from the Property between the Effective Date and the Closing Date, if the Closing Date follows the Effective Date, and the amount of any such payment shall be reimbursed to SELLER as a closing adjustment to the Purchase Price pursuant to Section 2.2. If either party pays taxes owed by the other, upon receipt of evidence of payment the nonpaying party will reimburse the paying party promptly for its proportionate share of such taxes. 9.4 Tax and Financial Reporting. 9.4.1 IRS Form 8594. If the parties mutually agree that a filing of Form 8594 is required, the parties will confer and cooperate in the preparation and filing of their respective forms to reflect a consistent reporting of the agreed upon allocation of the value of the Property. 9.4.2 Financial Reporting. SELLER and BUYER agree to furnish to each other at Closing or as soon thereafter as practicable any and all information and documents reasonably required to comply with tax and financial reporting requirements and audits. 9.4.3 Intangible Drilling Cost Recapture. SELLER and BUYER agree to furnish to each other, at Closing or as soon as practicable thereafter, data relative to deductions claimed, pursuant to Section 263(c) of the Internal Revenue Code of 1986, for intangible drilling costs related to the Property, and any other relevant data to allow each party to calculate the carryover intangible drilling costs associated with the Property that is subject to potential recapture under Section 1254(a) of the Internal Revenue Code of 1986. 9.4.4 Federal Tax Reporting. The taxable income or loss and all other tax items of the Corporation for all taxable periods of the Corporation ending on or before the Effective Date therefore shall be included in the consolidated federal income tax return of the SELLER's affiliated group. SELLER has paid or shall pay or cause to be paid all income taxes, interest, penalties and other amounts due with respect to federal income tax returns of all members of SELLER's affiliated group (including the Corporation) filed or required to be filed for any and all taxable periods ending on or before the Effective Date ("Pre-closing Periods"). 9.5 Sales and Use Taxes. BUYER shall be responsible for and pay all federal, state, or local sales, transfer, gross proceeds, use and similar taxes incident or applicable to the Property it receives under this Agreement, or caused by the transfer of the Property to BUYER under this Agreement. If SELLER is required to pay such sales, use or similar taxes on behalf of BUYER, BUYER will reimburse SELLER at Closing for all sales and use taxes due and payable on the transfer of the Property to BUYER. 9.6 Income Taxes. Each party shall be responsible for its own state and federal income taxes, if any, as may result from this transaction. 9.7 Incidental Expenses. Each party shall bear its own respective expenses incurred in connection with the negotiation and Closing of this transaction, including its own consultants' fees, attorneys' fees, accountants' fees, and other similar costs and expenses. 9.8 Indemnity. BUYER shall be responsible for and shall pay or cause to be paid all federal, state and local taxes of the Corporation, if any, for the taxable periods following the Effective Date, and BUYER shall indemnify and hold SELLER harmless for any and all federal, state and local taxes, penalties, interest or any other government levies assessed therefrom. 9.9 Cooperation. BUYER and SELLER shall cooperate with each other in connection with any tax matters, concerning the Corporation including, but not limited to compliance, audits and litigations. SELLER shall have the right to defend (at its own expense) any contest for the assessment of taxes for which it is responsible for under this Agreement. 9.10 Section 338(h)(10) Election. SELLER and BUYER shall file a simultaneous joint election to treat the sale of the shares of the Corporation as a sale of assets under Treasury Regulations section 1.338(h)(10)-1T, and related regulations. SELLER and BUYER agree, without limitation, to execute all consents, forms, adjusted basis allocations and supporting schedules necessary to effect said election under the consolidated federal tax returns of the parties. ARTICLE 10. [Intentionally left blank.] ARTICLE 11. MISCELLANEOUS ------------- 11.1 Preferential Right to Purchase and Process Production. At Closing, SELLER and COI will execute an agreement providing for the following: 11.1.1 SELLER's Right and Option. COI shall grant and SELLER shall have the ongoing preferential right and option, but not the obligation, to purchase oil, condensate or other liquid Hydrocarbons ("Liquid Hydrocarbons") produced from the Assets, and payment for such Liquid Hydrocarbons shall be at the same price and under the same terms and conditions offered to COI in any bona fide offer from a third party purchaser. If COI does not have a bona fide offer from a third party purchaser, then payment for such Liquid Hydrocarbons shall be at SELLER's posted price as specified in SELLER's posted price bulletin in effect on the delivery date for Liquid Hydrocarbons of like kind and quality to that produced from the Assets (currently Conoco's South Louisiana Sweet (Onshore) posting), less per barrel taxes and transportation deductions. If SELLER does not have a posted price for Liquid Hydrocarbons from the Assets, then payment for such Liquid Hydrocarbons shall be based on the published price of another major oil company on which SELLER and COI mutually agree, in effect on the delivery date for Liquid Hydrocarbons of like kind, quality, and location, less per barrel taxes and transportation deductions. COI shall grant and SELLER shall also have the preferential right and option to purchase or process natural and casinghead gas, or other gaseous Hydrocarbons ("Gaseous Hydrocarbons") produced from the Assets, with payment for the Gaseous Hydrocarbons purchased and/or gas products recovered to be at the same price and under the same terms and conditions offered to COI in any bona fide offer from a third party purchaser. If COI does not have a bona fide offer from a third party purchaser, then the price will be determined on the basis of an agreement between SELLER and COI containing terms generally acceptable in the area. 11.1.2 Third-Party Offers. If COI receives from a responsible, unaffiliated third-party a bona fide offer acceptable to COI to purchase Liquid Hydrocarbons or purchase and/or process Gaseous Hydrocarbons from the Assets it receives, COI shall furnish SELLER a copy of this offer as written on the letterhead of the third-party offeror. SELLER shall then have one (1) day (or such shorter period as may be mutually agreeable to the parties) after receiving a copy of the offer to either waive its right or elect to purchase and/or process the Liquid Hydrocarbons or Gaseous Hydrocarbons, as applicable, on terms substantially equivalent to those offered to COI by the third-party offeror or on more favorable terms and conditions to COI. Failure to timely reply to COI's notice will be a one-time waiver of SELLER's preferential rights under this Section 11.1. Once waived, and if COI accepts the third-party offer, the preferential rights under this Section 11.1 will not be enforceable during the term of any sale or processing contract between COI and the third-party offeror. However, COI agrees not to enter into any sale or processing contract with a third-party offeror with a term in excess of six months in duration. 11.1.3 Miscellaneous. (i) The preferential rights in this Section 11.1 shall be subject to the expiration of any existing contracts for the purchase of Liquid Hydrocarbons or Gaseous Hydrocarbons from the Assets between COI and third-party purchasers that are part of the Related Contracts, and also subject to the Gas Purchase Agreement, dated January 1, 1994, as amended May 1, 2000, between Continental Alaska Pipe Line Company (now called Conoco Offshore Inc.) and Conoco Inc. (item 12 of the Related Contracts, C-12996). (ii) The failure of SELLER to exercise its preferential rights to purchase Liquid Hydrocarbons or Gaseous Hydrocarbons from the Assets under this Section 11.1 at any time or times shall not constitute a waiver of those preferential rights. (iii)For the purposes of this Agreement, any exchange or other disposition of Liquid Hydrocarbons or Gaseous Hydrocarbons from the Assets will be considered a sale under this Section 11.1 and subject to SELLER's preferential rights under this Section 11.1. (iv) The preferential rights in this Section 11.1 shall be a covenant running with the land. 11.2 Dispute Resolution. Any dispute concerning this Agreement (other than Claims by a third party in litigation for which a party to this Agreement is claiming indemnity) shall be resolved under the mediation and binding arbitration procedures set forth in Exhibit H. Compliance with this Section 11.2 and the procedures set forth in Exhibit H shall constitute a condition precedent to either party seeking judicial enforcement of any provisions of this Agreement. The parties agree that the provisions of Exhibit H are a severable, independent arbitration agreement separately enforceable from the remainder of this Agreement. 11.3 Suspense Accounts. At SELLER's option and as soon as practical after the Closing, SELLER shall transfer to BUYER all funds held by SELLER in suspense related to proceeds of production and attributable to third parties' interests in the Leases or Hydrocarbon production from the Leases (but not including any suspended funds relating to any Claims described in Exhibit C), including funds suspended awaiting minimum disbursement requirements, funds suspended under division orders and funds suspended for title and other defects. If such funds are transferred to BUYER, BUYER agrees to administer all such accounts and assume all payment obligations relating thereto in accordance with all applicable laws, rules and regulations, and shall be liable for the payment thereof to the proper parties. 11.4 SELLER's Marks and Logos. Rights to the name "Conoco" and all its variants, and all other marks and logos of SELLER are expressly retained by SELLER. To the extent COI has or uses any such names, marks and logos after Closing, BUYER will cause COI to cease such use and, if necessary, to assign same to SELLER. BUYER shall cause COI to change its corporate name within sixty (60) days after Closing to remove the name "Conoco" from its corporate name. 11.5 Survival of Representations and Warranties. All of the representations, warranties, covenants, indemnities and agreements of or by the parties to this Agreement will survive the Closing, the execution and delivery of the Assignment Documents and other instruments under this Agreement, and the transfer of the Property between the parties; and they shall not be merged into or superseded by the Assignment Documents or other documents delivered at Closing. However, neither party to this Agreement will be entitled to make a Claim against the other party in connection with the inaccuracy of the representations and warranties of the other party in this Agreement unless the other party is notified of that Claim in writing within one (1) year after the Closing Date. 11.6 Public Announcements. Neither party may make press releases or other public announcements concerning this transaction, without the other party's prior written approval and agreement to the form of the announcement, except as may be required by applicable laws or rules and regulations of any governmental agency or stock exchange. 11.7 Notices. All notices under this Agreement must be in writing. Any notice under this Agreement may be given by personal delivery, facsimile transmission, U.S. mail (postage prepaid), or commercial delivery service, and will be deemed duly given when received by the party charged with such notice and addressed as follows: If to SELLER: CONOCO INC. 600 North Dairy Ashford Houston, Texas 77079 Attention: Manager, Acquisitions and Divestitures Fax No.: (281) 293-5088 Telephone: (281) 293-1000 CONOCO OFFSHORE PIPE LINE COMPANY 600 N. Dairy Ashford Houston, Texas 77079 Attention: W. M. Hicks, Vice President Fax No.: (281) 293-3024 Telephone: (281) 293-2491 with copy to: CONOCO INC. 1000 South Pine P. O. Box 1267 Ponca City, Oklahoma 74603 Attention: Manager, Real Property Administration Fax No.: (405) 767-5479 Telephone: (405) 767-2233 If to BUYER: STONE ENERGY CORPORATION 625 East Kaliste Saloom Road Lafayette, Louisiana 70508 Attention: E. J. Louviere Title: Vice President, Land Fax No.: (337) 237-0996 Telephone: (337) 272-0415 Any party, by written notice to the other, may change the address or the individual to which or to whom notices are to be sent under this Agreement. 11.8 Effective Date. The Effective Date of this Agreement will be 11:59 p.m. Central Standard Time, on December 31, 2001. 11.9 Binding Effect; Assignment. Except as expressly provided in Section 2.7, prior to the later of the Closing Date or the Effective Date neither party may assign its rights or obligations under this Agreement without the prior written consent of the other, which may be withheld for any reason including convenience. If BUYER sells, transfers or assigns all or a portion of the Property, (i) this Agreement shall remain in effect between BUYER and SELLER as to all the Property regardless of such sale or assignment (and BUYER will remain obligated hereunder), and (ii) BUYER shall require its successors and assigns expressly to assume its obligations under this Agreement, to the extent related or applicable to the Property or portion thereof acquired by them. 11.10Entire Agreement and Amendment. This Agreement, together with any relevant confidentiality agreement referred to in Section 5.1, constitutes the entire understanding between the parties, replacing and superseding all prior negotiations, discussions, arrangements, agreements and understandings between the parties regarding the subject transaction and subject matter hereof (whether written or oral), excepting any written agreements that may be executed by the parties concurrently or after the execution of this Agreement. No other agreement, statement or promise made by any party, or to any employee, officer or agent of any party, which is not contained in this Agreement shall be binding or valid. This Agreement may be supplemented, altered, amended, modified or revoked by writing only, signed by the parties hereto. 11.11Interpretation. The parties stipulate and agree that this Agreement shall be deemed and considered for all purposes to have been jointly prepared by the parties, and shall not be construed against any one party (nor shall any inference or presumption be made) on the basis of who drafted this Agreement or any particular provision hereof, who supplied the form of Agreement, or any other event of the negotiation, drafting or execution of this Agreement. Each party agrees that this Agreement has been purposefully drawn and correctly reflects its understanding of the transaction that it contemplates. In construing this Agreement, the following principles will apply. 11.11.1 Examples shall not be construed to limit, expressly or by implication, the matter they illustrate. 11.11.2 The word "includes" and its derivatives means "includes, but is not limited to" and corresponding derivative expressions. 11.11.3 A defined term has its defined meaning throughout this Agreement and each Appendix, Exhibit and Schedule to this Agreement, regardless of whether it appears before or after the place where it is defined. 11.11.4 If there is any conflict or inconsistency between the provisions of the main body of this Agreement and the provisions of any Appendix, Exhibit, Schedule or executed Assignment Document, the provisions of this Agreement shall take precedence. If there is any conflict between the provisions of any pro forma Assignment Document or other transaction documents attached to this Agreement as an Appendix, Exhibit or Schedule and the provisions of any Assignment Documents and other transaction documents actually executed by the parties, the provisions of the executed Assignment Documents and other executed transaction documents shall take precedence. 11.11.5 The omission of certain provisions of this Agreement from the Assignment Documents does not constitute a conflict or inconsistency between this Agreement and the Assignment Documents, and will not effect a merger of the omitted provisions. To the fullest extent permitted by law, all provisions of this Agreement are hereby deemed incorporated into the Assignment Documents by reference. 11.11.6 The underlined Article, Section and Exhibit references in this Agreement refer to the Articles, Sections and Exhibits of this Agreement. The headings and titles in this Agreement are for convenience only and shall have no significance in interpreting or otherwise affect the meaning of this Agreement. 11.11.7 The plural shall be deemed to include the singular, and vice versa 11.11.8 The term "knowledge" as applied to either party, shall mean the actual knowledge of such party's officers and directors, and its employees, agents, or representatives at a supervisory level and above. 11.12Third-Party Beneficiaries. It is understood and agreed that there shall be no third-party beneficiary of this Agreement, and that the provisions hereof do not impart enforceable rights, benefits, or remedies in anyone who is not a party or a successor or assignee of a party hereto. 11.13Successors and Assigns. This Agreement binds and inures to the benefit of the parties hereto their respective permitted successors and assigns, and all the terms, provisions, covenants, obligations, indemnities, representations, warranties and conditions of this Agreement shall be enforceable by the parties hereto and their respective permitted successors and assigns. 11.14Severability. If any provision of this Agreement is found by a court of competent jurisdiction to be invalid or unenforceable, that provision will be deemed modified to the extent necessary to make it valid and enforceable and if it cannot be so modified, it shall be deemed deleted and the remainder of the Agreement shall continue and remain in full force and effect. 11.15Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original and all of which shall constitute one document. 11.16Governing Law. THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED, AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF LOUISIANA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS OTHERWISE APPLICABLE TO SUCH DETERMINATIONS. 11.17Exhibits. The Appendices, Exhibits and Schedules attached to this Agreement are incorporated into and made a part of this Agreement, and, prior to Closing, SELLER and BUYER agree to revise or supplement the Appendices, Exhibits and Schedules, as and if necessary to more accurately describe the information mutually intended by the parties to be reflected thereon. 11.18Waiver. Any of the terms, provisions, covenants, representations, warranties or conditions hereof may be waived only by a written instrument executed by the party waiving compliance. Except as otherwise expressly provided in this Agreement, the failure of any party at any time or times to require performance of any provision hereof shall in no manner affect such party's right to enforce the same. No waiver by any party of any condition, or of the breach of any term, provision, covenant, representation or warranty contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of the breach of any other term, provision, covenant, representation or warranty. 11.19 Default and Remedies. 11.19.1 SELLER's Remedies. Upon failure of BUYER to perform any of the obligations under this Agreement to be performed by BUYER prior to and on the Closing Date, SELLER, at SELLER's sole option, may (i) enforce specific performance, or (ii) terminate this Agreement and retain the Performance Deposit as agreed liquidated damages and not as a penalty. The remedies set forth in this Section 11.19.1 shall be SELLER's sole and exclusive remedies for any such default, and SELLER hereby expressly waives and releases all other remedies (except as provided in Section 11.19.4). 11.19.2 BUYER's Remedies. Upon failure of SELLER to perform any of the obligations to be performed by SELLER prior to and on the Closing Date, BUYER, at BUYER's sole option, may (i) enforce specific performance, or (ii) terminate this Agreement and receive back the Performance Deposit (without interest) from SELLER. The remedies set forth in this Section 11.19.2 shall be BUYER's sole and exclusive remedies for such default, and BUYER hereby expressly waives and releases all other remedies (except as provided in Section 11.19.4). 11.19.3 Effect of Termination. Notwithstanding anything to the contrary in this Agreement (except Section 11.19.4), in the event of termination of this Agreement, the transaction shall not close and this Agreement shall become void and have no further effect whatsoever, and neither BUYER nor SELLER shall have any further liability, obligations, right or duty to the other under this Agreement, except as provided in Sections 11.19.1, 11.19.2, and 11.19.4, as applicable. 11.19.4 Other Remedies. Notwithstanding the provisions of Sections 11.19.1, 11.19.2 and 11.19.3, termination of this Agreement shall not prejudice or impair SELLER's or BUYER's rights and obligations under Sections 5.1 (and the confidentiality agreements referenced therein), 5.2 (BUYER's inspections), 5.3.2 (confidentiality of environmental data), and 11.2 (dispute resolution), and such other portions of this Agreement as are necessary to the enforcement and construction of Sections 5.1, 5.2, 5.3.2, and 11.2. 11.20SELLER's Audit Rights. SELLER shall have the right, during reasonable business hours, to audit all records (excepting federal tax records and records subject to the attorney/client privilege) of BUYER pertaining to the Property for a period of two years from Closing. IN WITNESS WHEREOF, the authorized representatives of Conoco, COPL and Stone execute this Agreement on the dates stated below. CONOCO INC. STONE ENERGY CORPORATION (formerly Continental Oil Company, Charter Number 523126) By: /s/ W.E. Earnest By: /s/ D. Peter Canty _____________________________ ___________________________ Name: W. E. Earnest Name: D. Peter Canty _____________________________ ___________________________ Title: Attorney-in-Fact Title: President and CEO _____________________________ ___________________________ Date: October 8, 2001 Date: October 8, 2001 _____________________________ ___________________________ Witnesses: _________________________ Witnesses: ___________________________ _________________________ ___________________________ CONOCO OFFSHORE PIPE LINE COMPANY By: /s/ W.M. Hicks _____________________________ Name: W.M. Hicks _____________________________ Title: Vice-President _____________________________ Date: October 8, 2001 _____________________________ Witnesses: ___________________________ ___________________________ EX-23 5 chantel8k23-1.txt PRICEWATERHOUSECOOPERS CONSENT LETTER EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (Nos. 33-67332, 333-51968, 333-64448 and 333-87849) and S-3 (No. 333-79733) of Stone Energy Corporation of our report dated January 15, 2002 relating to the Statement of Combined Revenues and Direct Operating Expenses of the Acquired Properties, which appear in the Current Report on Form 8-K of Stone Energy Corporation dated January 15, 2002. PricewaterhouseCoopers LLP January 15, 2002 Houston, Texas -----END PRIVACY-ENHANCED MESSAGE-----